U.S. wholesale price inflation as measured by the Producer Price Index for final demand was flat in February, following a revised 0.6 percent jump in January, and below expectations for a 0.3 percent rise in the Econoday survey of forecasters. Final demand prices advanced 0.5 percent in December and 0.1 percent in November.

Compared to February 2024, final demand PPI rose 3.2 percent, compared to a 3.5 percent increase for the 12 months ended in January.

This data point further eases concerns that the battle against inflation has stalled. However, lurking on the horizon is the expected negative impact on prices will from the higher tariffs on steel and aluminum imports, as well as all imports from China.

There was a 0.3-percent jump in prices for final demand goods building on a 0.6 percent spike in January. Prices for final demand services were decline 0.2 percent, after a 0.6 percent jump in January.

Food prices rose by 1.7 percent after a 1.0 percent increase in January and have soared by 5.9 percent from February 2024 (compared to +5.5 percent year-over-year in January). Energy prices in February decreased by 1.2 percent after jumping 1.8 percent in January but are down 3.7 percent when compared to February 2024 (after prices were unchanged on an annual basis in January).

February final demand prices excluding food and energy fell 0.1 percent, following a 0.5 percent increase in January, and are up 3.4 percent from a year ago after a 3.6 percent rise in January.

Final demand prices excluding foods, energy, and trade services saw a 0.2 percent uptick in February, following a 0.3 percent jump in January, and +0.4 percent in December. For the 12 months ended in February, prices for final demand less foods, energy, and trade services rose 3.3 percent, compared to a 3.4 percent rise on an annual basis in January.

The consensus looks for headline PPI to ease off slightly after an. ugly January report. The consensus looks for PPI up 0.3 percent on month and up 3.4 percent on year in February after rising 0.4 percent and 3.5 percent in January. PPI ex-food & energy is seen up 0.3 percent on the month in February after rising 0.3 percent in January.

The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.

The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.

While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.

The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.

The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.

The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.

The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.