Core PPI Falls to Lowest in Four Years, Headline Flat
Following the milder-than-anticipated rise in consumer prices on Wednesday, producer prices echoed the trend on Thursday. Core Producer Price Index (PPI) fell 0.1% month-over-month—the steepest drop since April 2020—missing the expected 0.3% gain and reducing the year-over-year rate to 3.4%. Transportation services was the biggest downside driver of Core PPI. Meanwhile, headline PPI remained flat month-over-month in February, significantly underperforming the expected 0.3% increase.
The PPI miss eased inflation hawks’ feathers, but markets aren’t popping champagne—yields up, stocks down, and experts split on whether this is a breather or a prelude to trade-war chaos.
“There are some near-term risks owing to the trade war and associated supply chain disruptions, but any forthcoming pickup in these numbers is unlikely to be sustained should demand continue to soften,” Bryan Jordan, Cycle Framework Insights, Inc shared with Connect.
The index for final demand goods rose 0.3% month-over-month in February, extending a five-month upward streak. Final demand foods soared 1.7%, driving the goods increase, with roughly two-thirds of that gain linked to a 53.6% spike in chicken egg prices, according to the BLS.
Final demand services, meanwhile, dropped 0.2% in February, the steepest decline since July 2024. Over 40% of this fall stemmed from a 1.4% reduction in margins for machinery and vehicle wholesaling. In contrast, prices for final demand services excluding trade, transportation, and warehousing rose 0.2% in February, while the index for transportation and warehousing services held steady, per the BLS.
While the flat PPI reassures inflation isn’t surging, goods pressures (e.g., metals up on tariff bets) signal potential problems down the road. February’s unexpected easing precedes recent tariff hikes. The softer pace of pricing pressure “is encouraging news, though it doesn’t tell us much about where inflation is headed,” said Oren Klachkin, Nationwide Financial Markets economist. “With tariffs possibly set to push goods prices higher … we see inflation risks as tilted to the upside.