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First Cut: February producer prices blunted by declines in food, energy, and trade services

The Final Demand PPI for February declined more than anticipated at down 0.6% month-over-month and was up an anemic 1.3% year-over-year. The core PPI — excluding food, energy, and trade services — was down 0.1% in February compared to January, and up 1.3% compared to February 2019.

The BLS said that 60% of the month-to-month decrease at the headline was due to a 0.9% drop in final demand goods. Final demand services was down 0.3%. Final demand goods were up only 0.5% compared to February 2019, while services were up 1.5%.

Prices for food fell 1.6% month-over-month and was driven by a particularly large decline in fresh and dried vegetable of 28.9% that was probably due to early arrival of spring produce. There were also substantial declines for fish (down 6.6%), oilseeds (down 5.4%), and for various meats like beef (down 2.7%), pork (down 3.7%), and young chickens (down 2.3%).

The 3.6% decline in energy was due to widespread decreases in prices for gasoline (down 6.5%), diesel fuel (down 10.9%), home heating oil (down 11.6%), and liquefied petroleum gas (down 11.3%).

Final demand trade services were down 0.7% that was in part due to new tariffs on goods from Europe. The largest decline was 11.7% in apparel, jewelry, footwear, and accessories retailing, and also for health and beauty of 1.0%, and food and alcohol wholesaling of 1.5% and retailing of 0.5%.

The February PPI is another measure that was compiled with data from before the spread of COVID-19 spooked — and continues to spook — financial markets and impacts were evident in goods along the supply chain and demand for services. The fairly sharp decline in February is explainable in terms of some one-offs that are likely to resolve at least partially in the March numbers. Declines in energy are ongoing.  However, with the uncertainties in the data and indications that an economic slowdown will limit how much inflation measures can struggle back toward the Fed’s 2% symmetric target, the February report will join other reports in being of diminished utility in the present moment.


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