WASHINGTON: US producer prices increased strongly in February, leading to the largest annual gain in nearly 2-1/2 years, but considerable slack in the labour market could make it harder for businesses to pass on the higher costs to consumers.
That was supported by a survey on Friday showing an easing in consumers’ near-term inflation expectations early this month, even as their confidence in the economy rose to a one-year high.
Receding new Covid-19 cases, an acceleration in the pace of vaccinations and more pandemic relief money from the government are seen allowing wider economic re-engagement in the spring.
Inflation is expected to accelerate in the coming months and exceed the Federal Reserve’s 2 per cent target, a flexible average, by April.
Part of the anticipated spike would be the result of price declines early in the pandemic washing out of the calculations. Many economists, including Fed Chair Jerome Powell, do not expect the strength in inflation will persist beyond the so-called base effects.
“Beyond a rise in the metrics this year on base effects and a fuller reopening of the economy that will revive demand, price pressures are unlikely to keep accelerating, given an incomplete recovery in the labour market,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.
The producer price index for final demand rose 0.5 per cent last month, with the costs of energy products and food surging, the Labor Department said. That followed a 1.3 per cent jump in January, which was the biggest advance since December 2009.
In the 12 months through February, the PPI accelerated 2.8 per cent, the most since October 2018. The PPI increased 1.7 per cent year-on-year in January. Last month’s rise in the PPI was in line with economists’ expectations.
Manufacturing and services industries have been flagging higher production costs as the year-long pandemic gums up the supply chain. Surveys this month showed measures of prices paid by manufacturers and services industries in February racing to levels last seen in 2008.