The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.7 percent in February, its fastest pace since September. The main driver of the higher number was increased energy prices, which were up by 3.0 percent for the month. This corresponds to a rise in average petroleum prices from $88.25 per barrel in December to $95.32 in February. Intermediate and crude energy costs were also higher, suggesting that these costs will continue to flow through the process to finished goods in coming months.
Lower food costs at the finished goods level helped to ease the pain of increased energy prices. The prices of finished food products fell 0.5 percent in February, largely on lower costs for vegetables, eggs, and some meats.
Overall core inflation – which excludes food and energy costs – rose 0.2 percent in February, the same pace as the month before. Core inflation is currently operating at a 1.7 percent annual pace, down from 1.8 percent in January. This continues to keep pricing pressures below the Federal Reserve’s stated target of maintaining core inflation at 2 percent or less. As such, inflationary pressures remain in-check, at least for now.
With that said, producer prices for manufacturers have accelerated in the past month. Raw material costs for the sector increased 1.5 percent, and the year-over-year rate was 1.4 percent. The annual pace has picked up in February, as it had been 0.3 percent in January. The manufacturing industries with the greatest price increases were wood products (up 8.8 percent), leather and allied products (up 4.2 percent), food manufacturers (up 2.9 percent), and beverages and tobacco (up 2.7 percent). Decreases in input prices, though, were seen in the primary metal (down 5.9 percent), textile mills (down 0.6 percent), and computer and electronic products (down 0.3 percent) manufacturing sectors.
Chad Moutray is chief economist, National Association of Manufacturers.