The numbers: Wholesale prices rose a sharp 0.8% in February and signaled that the hottest U.S. inflation in 40 years is unlikely to cool off in the spring.
Wall Street economists had forecast a 0.9% gain.
The increase in wholesale prices over the past year stayed at 10% for the second month in a row, the government said Tuesday. That’s the highest level in decades.
In a potentially bit of good news, the increase in so-called core wholesale prices rose a scant 0.2% to mark the smallest advance in 15 months. Stocks rose in Tuesday trades partly in response to a lower core rate.
The core rate excludes food, energy and retail trade margins and is viewed by the Federal Reserve as a better indicator of inflation.
Yet the cost of groceries and gas have risen sharply and are likely to remain high in the months ahead, suggesting little relief for consumers. Food and fuel are two of biggest expenses for households.
Wholesale prices reflect what companies pay for supplies such as grains, fuel, metals, lumber, packaging and so forth. Higher business costs tend to translate into rising prices for customers and more inflation.
Big picture: The biggest surge in inflation since the early 1980s spells trouble. The Federal Reserve plans to raise interest rates on Wednesday for the first time in four years to try to tamp down price increases, a move that will raise costs for auto loans, mortgages and other credit.
Economists say high inflation is expected to persist through the summer before starting to wane, but that assumes the war in Ukraine doesn’t get any worse.
Both countries are major producers of grains and energy, whose prices have soared since the conflict began.
Key details: The wholesale cost of goods surged 2.4% last month, the biggest increase since the index was reformulated in 2009. The wholesale cost of services were unchanged.
Most of the increase in wholesale prices was tied to fuel and food. Gasoline prices leaped almost 15% and the cost of food rose 1.9%.
Prices at the grocery store have climbed at the fastest pace since 1981, a separate survey of consumer inflation shows.
These costs could continue to rise in the near future. Most of the increase in commodity prices tied to the Ukraine conflict won’t show up until the March inflation reports.
What’s more, the cost of partly finished goods and raw materials both rose sharply in February in a sign there’s still plenty of inflation in the guts of the economy.
The small increase in the core PPI rate, meanwhile, stemmed largely from sharp declines in the wholesale cost of services such as financial advice. The cost of these services are quite volatile, however, and not viewed as very reliable.
Looking ahead: “Inflation in the pipeline is showing few signs of decelerating in the near term, especially as the Russia-Ukraine war wreaks havoc in energy and other commodity markets,” said U.S. economist Mahir Rasheed at Oxford Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
+1.29%
and S&P 500
SPX,
+1.45%
rose in Tuesday trades. The smaller than expected increase in core PPI cheered investors.