WASHINGTON: US producer prices rose solidly in February, and further gains are likely amid higher prices of crude oil and other commodities following Russia’s war against Ukraine.
The producer price index for final demand increased 0.8% after accelerating 1.2% in January, the Labor Department said on Tuesday. In the 12 months through February, the PPI climbed 10% after a similar gain in January.
Economists polled by Reuters had forecast the PPI gaining 0.9% and increasing 10.0% year-on-year. The data does not capture the surge in prices of oil and other commodities, like wheat, following Russia’s invasion of Ukraine on Feb. 24.
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Inflation by all measures has way exceeded the Federal Reserve’s 2% target. The US central bank is expected to start raising interest rates on Wednesday. Economists are forecasting as many as seven rate hikes this year.
Crude oil prices shot up more than 30%, with global benchmark Brent hitting a high at $139 a barrel, the highest since 2008, before easing to trade below $100 a barrel on Tuesday.
Despite the pullback in oil prices, inflation is likely to remain hot as a resurgence in COVID-19 infections in China, a major source of raw materials for US factories, puts more pressure on supply chains.
“US inflation will accelerate through the first half of this year and will almost certainly push higher still in the third quarter if not the fourth,” said Chris Low, chief economist at FHN Financial in New York.
Inflation was already a problem before the Russia-Ukraine war. A shift in spending to goods from services during the COVID-19 pandemic and trillions of dollars in relief from the government unleashed strong demand, which ran against capacity constraints as the spread of the coronavirus pushed millions of workers out of the labor market, making it harder to move raw materials to factories and finished goods to consumers.
The government last week reported an acceleration in consumer prices in February, with the annual inflation rate posting its largest increase in 40 years.