US wholesale prices picked up in February in sign that inflation pressures remain elevated

WASHINGTON (AP) — U.S. wholesale prices accelerated again in February, as inflationary pressures in the economy remain high and do not ease as quickly in coming months as the Federal Reserve and the Biden administration hope. This is the latest sign that it may not.

The Labor Department said Thursday that the producer price index, which tracks inflation before it reaches consumers, rose 0.6% from January to February, up from a 0.3% rise the previous month. Measured against the same month last year, producer prices rose 1.6% in February, the largest increase since September last year.

The numbers could pose a challenge for the Federal Reserve, which is hoping to rein in inflation when it meets next week to consider when to cut its benchmark interest rate, currently at a 23-year high. The Fed has raised interest rates 11 times in 2022 and 2023 to combat high inflation. Rate cuts by the Fed could boost the economy and financial markets, as borrowing costs for mortgages, auto loans and business loans are likely to ease over time.

A rise in wholesale gas prices, which rose 6.8% from January to February alone, drove most of last month’s gains. Wholesale food costs also recorded a significant increase of 1%.

But even excluding the volatile food and energy categories, “core” inflation remained higher than expected in February. Core wholesale prices rose 0.3%, slowing from the previous month’s 0.5% rise. Compared to a year ago, the core price increased by 2%, the same as the previous month. Core inflation tends to be a better indicator of where inflation is headed and is monitored particularly closely.

A sustained rise in inflation could pose a threat to President Joe Biden’s re-election bid, but is plagued by Americans’ generally bleak view of the economy. Consumer inflation has fallen sharply to 3.2% from a peak of 9.1% in 2022. But many Americans are outraged that average prices remain about 20% higher than before the pandemic broke out four years ago.

The producer price index can give an early read on where consumer inflation is heading. It is also closely monitored because some of the data is used to create the Fed’s recommended inflation measure, known as the Personal Consumption Expenditures Price Index.

Thursday’s producer price index report suggested core prices in the Fed’s measure rose 0.3% last month, and are up 2.8% from a year ago, according to economists at Capital Economics. If the year-over-year measurement is accurate, there will be no change from the previous month.

A separate report on Thursday showed retail sales rose 0.6% from January to February, after a sharp 1.1% decline the previous month. Data shows consumer demand is cooling, with many consumers using up their pandemic-era savings and increasing spending on credit cards.

If consumers become more cautious, that could give the Fed some reassurance about the trend that the economy is cooling a bit and inflation could decline over time.

Thursday’s figures follow a report earlier this week on the consumer price index, the government’s most closely watched inflation measure. The CPI rose a sharp 0.4% from January to February, outpacing the pace consistent with the Fed’s 2% inflation target. This was an increase of 3.2% compared to the same month last year, compared to a 3.1% increase in the previous month.

The CPI report, which showed consumer prices rising for the second year in a row, revealed why Fed officials were cautious about cutting interest rates. After the January meeting, officials said in a statement that they needed “more confidence” that inflation was falling steadily to the targeted 2% level. Since then, several Fed policymakers have said they expect inflation to continue easing.

Inflation was expected to rise further in January and February, as companies typically impose price increases at the beginning of the year. The government’s seasonal adjustment process is supposed to account for these regular annual patterns, but it doesn’t always do so perfectly.

Still, the rise in producer prices in February suggests that inflation may remain high into the spring. Economists and Wall Street traders expect the Fed to cut benchmark interest rates in June, but that could be delayed until later in the year.

Policymakers in December signaled three rate cuts this year. On Wednesday, officials are expected to release a new quarterly forecast that could either maintain or revise that forecast.

Last week, Federal Reserve Chairman Jerome Powell suggested to Congress that the Fed is “not far” from starting to cut rates.

Robust spending and employment so far this year show the economy remains healthy despite a series of aggressive rate hikes from the Federal Reserve. Employers added a robust 275,000 jobs last month, according to a government report. The unemployment rate rose by two-tenths to a still low 3.9%, but it has remained below 4% for more than two years, the longest period since the 1960s.