Wholesale price inflation slows sharply in February

Wholesale price increases in the United States slowed sharply last month due to lower food and energy prices, a sign that inflationary pressures may be easing.

From January to February, the government’s producer price index fell 0.1%, after rising 0.3% from December to January, which was revised down sharply. Compared to a year ago, wholesale prices rose 4.6%, down sharply from January’s 5.7% annual increase.

A major contributor to the slowdown in wholesale inflation last month was a huge drop in egg prices, which fell 36.1% in February alone. Egg prices had already risen after a widespread outbreak of bird flu.

Excluding volatile food and energy costs, so-called core wholesale prices remained unchanged from January to February. The basic measure can provide a better reading of longer-term inflation trends.

Prices for services at the wholesale level fell last month, falling 0.1%. A substantial 1.1% drop in shipping costs lowered overall service prices.

Energy prices fell 0.2% as the cost of heating oil, natural gas and diesel fuel all fell. Food prices fell 2.2% from January to February, the third straight decline. This drop suggests that grocery prices, which have been rising at a slower pace, could fall further in the coming months.

The producer price data reflects prices charged by manufacturers, farmers and wholesalers, and it ends up in an inflation gauge that the Federal Reserve tracks closely. It can provide a harbinger of how fast consumer inflation will rise.

The numbers follow a Tuesday report on consumer prices this showed that inflation continues to rise faster than the Federal Reserve would like. Core prices, which exclude volatile food and energy costs and are considered a better indicator of long-term inflation, rose 0.5% from January to February, the highest rate since September. That’s a much higher pace than is consistent with the Fed’s 2% annual target.

But the bankruptcy of two major banks since Friday raised fears of financial instability and complicated future Fed decisions on how high and how fast to raise interest rates to fight inflation. Despite chronically high inflation, some economists expect the central bank to suspend its series of one-year interest rate hikes when it meets next week.

Many other analysts expect only a modest quarter-point rate hike next week rather than the Fed’s half-point hike they had previously forecast. The Fed, for now, could focus on bolstering confidence in the financial system before resuming its long-term campaign to get inflation under control.

It would be a dramatic departure from just a week ago, when President Jerome Powell suggested to a Senate committee that if inflation does not slow, the Fed could raise its benchmark interest rate by a substantial half point at its March 21-22 meeting. When the Fed raises its key rate, it typically leads to higher rates on mortgages, auto loans, credit cards, and many business loans.

The next day, testifying before a House committee, Powell warned that no final decision has been made on what the Fed would do at the March meeting.

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