US producer prices dip unexpectedly in February

Wholesale inflation in the US slipped unexpectedly last month as food and services prices fell again.

According to the US Department of Labor, in seasonally adjusted terms, total final demand prices drifted lower at a month-on-month pace of 0.1% in February.

Economists had forecast a rise of 0.4%.

That was on top of a downwards revision to January's estimate of the gain in final demand prices from 0.7% to 0.3%.

Within goods, food prices dropped by an outsized 2.2% versus January while energy prices dipped by 0.2%.

Services prices meanwhile slipped by 0.1% on the month, the same as in January, as trade services prices dropped by 0.8% and those for transportation and warehousing by 1.1%.

Worth noting, trade services prices included retailers' margins.

"We can’t overstate the importance of sustained gross margin compression; it is the key to squeezing out the non-wage/non-rent component of Covid-driven inflation, and these latest data are hugely encouraging," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Core PPI is a very close analog for core PCE inflation ex-rents - both are whole economy output price measures - and the strong likelihood of continued rapid core PPI disinflation is at the heart of our relatively optimistic take on core PCE inflation and, ultimately, Fed policy."

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