Producer prices for final goods decelerated sharply in February as price gains for services and construction slowed down.
Producer prices increased by 0.8% on the month, down from a 1.2% increase in January while registering a 10% rise in back-to-back months compared to a year ago, the Bureau of Labor Statistics reported on Tuesday.
The data will not deter the Federal Reserve’s decision on what will most likely be a rate hike of 25 basis points at its two-day monthly meeting that ends on Wednesday.
Despite the decline, the slowdown in producer prices will be temporary because it did not include the spikes in oil and commodity prices in recent weeks because of the Russian invasion of Ukraine.
Still, most of the increases in February already came from energy and food prices. The final demand prices for energy increased by 8.2% from 3.7% previously, while food prices advanced by 1.9% from 1.7% previously.
The producer prices for services fell behind as price gains for trade services—a proxy for price margins that wholesalers and retailers receive—dropped significantly to 0.2% from 1.7% in January.
The decline could suggest a pullback in retail sales and wholesale activity after a strong January. Data on February’s retail sales is due on Wednesday.
While the significant moderation in core prices in February was a somewhat encouraging sign, there remain headwinds as the labor market continues to be tight while the recent COVID-19 lockdown in China will further complicate supply chain issues, which have been improving lately.
Underneath the headline, prices paid in earlier stages of production continued their decline in February from last year’s peak. We expect, however, input prices to advance in March because of rising energy and commodity prices in the first half of the month.