Producer prices in the United States soar in February thanks to services

The producer prices in the United States rose more than expected in February and could accelerate further if the war in the Middle East drives up oil prices and the lingering impact of import costs.

The Producer Price Index for final demand jumped by 0.7% last month, driven by services, following an unrevised 0.5% increase in January, the Labor Department’s Bureau of Labor Statistics said on Wednesday. Economists surveyed by Reuters had expected a 0.3% increase in the PPI.

The American-Israeli war against Iran, which began at the end of February, has caused oil prices to rise by over 40%. Economists anticipate that the inflationary impact of the war will show in the March reports on consumption and production prices. The Federal Reserve is expected to keep interest rates stable at the conclusion of a two-day meeting on Wednesday. Federal Reserve officials will present new economic projections, with economists expecting a revision to higher estimates of inflation. Financial markets anticipate only one rate cut this year. Over the 12 months preceding February, the PPI rose by 3.4% after advancing by 2.9% in January. Some components of the PPI and the Consumer Price Index are factored into the calculation of Personal Consumption Expenditure price indexes, inflation measures monitored by the Fed to achieve its 2% inflation target.

Ahead of the PPI data release, economists estimated that the PCE price index, excluding volatile food and energy components, had increased by 0.4% in February. This would mark the third consecutive month in which the core PCE price index had risen by 0.4%, more than double the monthly pace needed to bring inflation back to its target level.

Estimates suggest that the core PCE inflation would have increased by 3.1% year-on-year in February, matching the rise in January. The Bureau of Economic Analysis will release the delayed February PCE inflation report next month.