U.S. Producer Prices Fall in February, Driven by Food and Energy

The headline Final Demand Producer Price Index fell 0.2% m/m (0.0% y/y) in February after an unexpected 0.1% m/m rise in January. The February reading was spot on expectations from the Action Economics Forecast Survey. The unchanged y/y reading in February was the first nonnegative monthly reading in 13 months. Final demand prices excluding food and energy prices were unchanged in February from January against an expectation of a 0.1% m/m increase; they had jumped 0.4% m/m in January. Compared to a year ago, this measure was up 1.2%, its highest reading since January 2015. Given the volatility and difficulty interpreting changes in prices of trade services, both the financial markets and the BLS have begun to shift their view of "core" PPI inflation to final demand prices excluding food, energy, and trade services prices from the historical "core" measure, which excluded only food and energy prices. This "new" core measure rose 0.1% m/m in February, down from +0.2% m/m in both January and December, to stand 0.9% higher than a year earlier.

The February decline in the headline index mostly reflected a 0.6% m/m decline (-2.7 y/y) in prices of final demand goods. The index for final demand services was unchanged in February (+1.5% y/y). The decline in goods prices was led by a 3.4% m/m drop in energy prices (gasoline prices fell 15.1% m/m) with an assist from a 0.3% m/m decline in food prices. Goods prices excluding food and energy edged up 0.1% m/m (+0.2% y/y) in February.

After three consecutive monthly increases, the index for final demand services was unchanged in February, but the 1.5% y/y increase was the highest since January 2015. In February, a 0.3% m/m increase in prices of final demand services excluding trade, transportation, and warehousing (led by a 4.8% m/m jump in prices for brokerage services, the third consecutive significant monthly increase--this index is now up 25% y/y) offset a 0.4% decrease in prices for final demand trade services (usually volatile and difficult to interpret change--this index had jumped 0.9% m/m in January) and a 0.7% drop in prices of final demand transportation and warehousing services.

Final demand construction prices fell 0.1% m/m in February, the third monthly decline in the past four months, but were up 1.0% from a year earlier.

Prices of processed goods for intermediate demand slumped 0.7% m/m in February, their eighth consecutive monthly decline, and were 5.6% lower than a year earlier.

The PPI data are contained in Haver's USECON database with further detail in PPI and PPIR. The expectations figures are available in the AS1REPNA database.