Last month's increase in the PPI was the largest since 2012, providing further evidence that inflationary pressures are building in the U.S. economy.
Prices paid by U.S. businesses for goods and services posted their largest year-on-year gain in nearly five years last month as rising oil prices and a weaker dollar continued to fuel inflationary pressures.
The Labor Department said its producer price index jumped 0.3% on a seasonally adjusted basis in February compared with the previous month. While the gain fell short of Januaryâ€™s 0.6% increase, it beat economistsâ€™ expectations of a 0.1% gain.
In the 12 months through February, the PPI jumped 2.2%, the biggest advance since March 2012 and ahead of the 2.0% gain forecast in a Reuters poll of economists.
Core PPI â€” a measure of underlying producer price pressures that excludes food, energy and trade services â€” advanced 0.3% in February, the biggest gain since April 2016, after edging up 0.2% in January.
The annual gain in core PPI was 1.8%, up on Januaryâ€™s 1.6%, while Federal Reserveâ€™s preferred measure of inflation â€” the core personal consumption expenditures index â€” is currently at 1.7%, still below its 2% target.
Firming inflation, together with a tightening labor market, could encourage the central bank to raise interest rates on Wednesday. â€śSteadily rising inflation gives the Fed more reason to lift rates,â€ť Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters.
Prices for final demand services increased 0.4% last month, accounting for more than 80% of the rise in the PPI. The gain, the largest since June 2016, reflected in part a 4.3% surge in hotel accommodation.
The cost of energy products increased 0.6%, slowing from Januaryâ€™s 4.7% surge, while wholesale food prices increased 0.3% after being unchanged in January.
â€śInflation pressures are continuing to build in the U.S. economy,â€ť said Rob Martin, an economist at Barclays in New York. â€śWith labor markets continuing to tighten, and the dollar and commodity prices broadly stable, we see inflation firming this year and next.â€ť