U.S. producer prices tumbled in February, indicating firming inflation. The producer-price index for final demand fell by 0.2% last month compared to the previous month, according to Tuesday’s report from the Labor Department.
With the exclusion of energy and food, core prices were flat. Economists were expecting overall prices to decline by 0.2%, but core prices to rise by 0.1%.
The newly released data shows no indication of domestic inflation pressure along the chain of production. The inflation data and a separate report indicating that retail sales slowed at the start of 2016 suggests that the economy is moving ahead at a slower speed than expected.
Despite this, underlying figures indicate that inflation is firming. Compared to the previous year, producer prices were flat overall. The reading is the firmest since January of last year when the reading was also flat. Core prices are also 1.2% higher compared to last year.
The producer-price index tracks prices from the producer’s perspective, rather than consumer prices.
Like other inflation measures, producer prices declined sharply in 2015. Oil prices were largely to blame, but there were other factors at play. A stronger dollar weighed on prices for imported products from overseas. Weaker global demand made it challenging for businesses to charge more for their products.
Oil prices have stabilized over the last few months, and the cost of fuel has fallen more slowly. As a result, the dollar’s rise has reached its peak, and inflation measures soared higher.
In January, the consumer-price index climbed 1.4% compared to the previous year. Data from February will be released on Wednesday. The personal consumption expenditures index increased 1.3% compared to last year.
Firmer inflation readings are exactly what Federal Reserve officials are looking for. The central bankers are looking for signs of inflation moving up towards their 2% target once the effects of a stronger dollar and oil prices have diminished. The Fed is meeting this week, and will be announcing its next interest rate decision on Wednesday.
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