PPI Declines 0.6% in February

The Producer Price Index for finished goods declined by 0.6% in February on a seasonally adjusted basis, according to the Bureau of Labor Statistics. That's a pretty big drop from the 1.4% increase in January. In fact, it's the first decline since September and the largest drop since July. It's also a steeper fall than the 0.2% decline economists expected.

Within that drop, energy played a large part, with its price declining by 2.9%. Food prices, however increased by 0.4%. If you strip out food and energy, PPI for finished goods actually increased slightly by 0.1%.

For intermediate goods, the PPI saw a similar movement, but didn't quite go negative. There, it increased slightly at a 0.1% rate. That's still much less than January's 1.7% increase, however. It's also the smallest increase since September.

For crude goods, PPI's drop was the steepest. There, it fell by 3.5% in February, a huge decline compared to January's 9.6% increase. This was the largest decline for crude goods prices in a year.

Even though Consumer Price Index is generally the more interesting inflation metric, PPI can be important for understanding the price pressures producers might be under. For example, if PPI experiences an upward trend, then CPI will have to eventually increase before too long.

So my take away here would be that, again, we probably don't have much to worry about on the inflation front in the near-term. Producer prices were flat to slightly deflationary across the board in February. Tomorrow CPI data is released for February, so we'll be able to have a little more confidence about inflation's overall direction then.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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