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Eggs and other wholesale prices decline, PPI shows, and hint at easing inflation

MarketWatch logo MarketWatch 3/15/2023 Jeffry Bartash
© Brandon Bell/Getty Images

The numbers: U.S. wholesale prices fell 0.1% in February — the second decline in three months — and hinted at some easing in stubbornly high inflation.

Economists polled by The Wall Street Journal had forecast a 0.3% increase in the producer price index. Wholesale costs often herald future inflation trends.

In January, producer prices were also revised down to show a much smaller 0.3% increase instead of 0.7% as originally reported. The initial report had added to the perception that inflation was not likely to slow quickly.

A separate measure of wholesale prices that strips out volatile food and energy costs rose a mild 0.2% last month, the government said Wednesday. That was also below Wall Street’s forecast.

Key details: The wholesale cost of goods fell last month, led by the third straight decline in food prices. That’s likely to lead some relief for consumers at the grocery store in the months ahead.

Notably, wholesale egg prices sank 41%. The cost of eggs had soared since the fall, doubling in price in some parts of the country.

See: Groceries are still much more expensive then they were a few years ago, though.

The cost of services also declined for the second month in a row. Service inflation has risen sharply in the past year and is harder to reverse, making it a particularly big worry for the Federal Reserve.

Inflation further down the pipeline also offered evidence of waning inflation.

The wholesale cost of partly finished goods fell for the seventh time in eight months, down 0.4% in February.

The more volatile cost of raw materials dropped 3.8%, the fifth decline in six months.

The PPI report captures what companies pay for supplies such as fuel, metals, packaging and so forth. These costs are often passed on to customers at the retail level and give an idea of whether inflation is rising or falling.

Big picture: The rate of inflation has slowed from a 40-year peak last summer and the latest PPI is encouraging.

Yet prices are still rising too fast to mollify the Fed, never mind thousands of businesses and millions of households grappling with high inflation.

The Fed ‘s task to rein in inflation has become more complicated, however, in the wake of the collapse of Silicon Valley Bank. Higher interest rates orchestrated by the Fed helped trigger a run on the bank that led to its failure, raising concerns about the soundness of the U.S. financial system.

The Fed might have dial back plans for future rate hikes, economists say, though it’s too early to tell just how much. The soft PPI might also give the Fed leeway to go easy if necessary.

Looking ahead: “The downward surprise to February’s PPI report is good news for the Fed,” said Matthew Martin, U.S. economist at Oxford Economics. The report “indicates that cooling demand is leading to a further slowdown in price increases, particularly in the goods sector.”

Market reaction: The Dow Jones Industrial Average and S&P 500 were set to open lower in Wednesday trades due to worries about the soundness of U.S. and foreign banks.


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