Producer Prices Soft In February

Producer prices came in soft across the board in February, down 0.2 percent overall and unchanged for the ex-food & energy reading and up 0.1 percent for ex-food/energy/services. These are all at or near consensus. Turning to details, demand for services is especially soft, unchanged in a reading that will not raise much confidence that inflation is moving toward the Fed's 2 percent target.

Nevertheless, year-on-year rates, boosted by easy comparisons with greater price weakness this time last year, are improving. Overall producer prices are unchanged on the year (which is the first non-negative reading in a year) with the two core readings looking less weak at plus 1.2 and plus 0.9 percent. But the year-on-year rate for services, though improving, is only plus 1.5 percent which does not point to building pressure for consumer services where the year-on-year rate has stalled at about 2.5 percent.

Energy prices continued to shrink in February, down 3.4 percent though energy prices for this report this time next month are likely to show strength given the ongoing upswing in oil. Food prices were especially weak in February, down 0.3 percent overall with vegetables down 19.0 percent in a loss however that follows 17 percent gains in the two prior months.

There have been hints of price pressures building in the economy, especially the 3 tenths gain to plus 1.7 percent for the PCE core, but this report, despite the improvement in the year-on-year rates, doesn't point to any accelerating pressures. Watch for the consumer price report on tomorrow's calendar where a soft total rate is expected to be offset by strength in the core.

Recent History Of This Indicator:
Pulled down by extending declines for oil and commodities, the headline for February's producer prices report is expected to slip 0.2 percent following a 0.1 percent rise in January. Excluding food and energy, the core rate is expected to show less weakness, at a consensus plus 0.1 percent gain. Service readings in this report were very strong in the January report, underscoring the strength of domestic demand. Year-on-year, producer prices were down 0.2 percent in January with the core rate up at plus 0.6 percent.