The Economy

U.S. Producer Prices Fall 0.6% in February

"The disinflationary impact from the [coronavirus] and the crash in oil prices will exert even more downward pressure on prices."
Matthew HellerMarch 12, 2020

U.S. wholesale inflation fell by the most in five years in February — and economists expect disinflationary pressures to continue as the coronavirus suppresses demand.

The Labor Department reported Thursday that its producer price index for final demand dropped 0.6% last month, the biggest decline since January 2015, after surging 0.5% in January. On an annual basis, it increased 1.3% after a 2.1% gain in January.

Economists polled by Reuters had forecast the PPI dipping 0.1% in February and rising 1.8% on a year-on-year basis.

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Producer prices in February were dragged down in large part by a 6.5% drop in the price of gasoline that accounted for nearly one-third of the 1% decline in the cost of goods last month.

With oil prices tumbling this week, further disinflation could be on the way, keeping inflation well below the Federal Reserve’s 2% target.

“Looking ahead, the disinflationary impact from the virus and the crash in oil prices will exert even more downward pressure on prices,” economist Lydia Boussour of Oxford Economics wrote in a note to clients.

Consumer prices rose a surprising 0.1% last month. But as Reuters reports, “the signs of some inflation in the economy are likely short-lived as the coronavirus pandemic suppresses demand for services like transportation, hotel accommodation, entertainment and recreation.”

The fall in oil prices and weak demand for services are expected to offset price increases caused by bottlenecks in the supply chain, Reuters added.

Wholesale food prices also fell sharply in February — the 1.6% decline was the largest since 2015 — while the cost of services dropped 0.3% after rebounding 0.7% in January, the most since October 2018.

There were decreases in the cost of airline tickets and hotel accommodation, which recorded its biggest decline since April 2009.

“Wholesale inflation has risen just 1.3% in the past 12 months and inflation is likely to taper off even more if the coronavirus brings the U.S. economy to a standstill,” MarketWatch said.