US not to lift interest rates as PPI falls
Print Edition
US producer prices fell in February, reinforcing the view that minimal inflation pressures could keep the Federal Reserve from raising interest rates for quite some time.
The Labor Department said yesterday that its seasonally adjusted Producer Price Index for final demand dipped 0.1 percent last month.
The data give little reason for Fed officials to worry their easy money policies are stoking inflation, and could make policy-makers feel more comfortable holding interest rates near zero for many more months.
“There is nothing in this report that raises any concerns about inflation,” said John Canally, economist and investment strategist at LPL Financial in Boston. “The economy is running too far below capacity for that to happen.
US inflation has held at a very low level in recent years because of a persistently high unemployment rate.
The value of the US dollar slipped against the yen following the data’s publication, suggesting investors felt the report buttressed the view that the Fed would hold interest rates extremely low into next year.
Analysts polled by Reuters had forecast a slight increase in prices received last month by businesses such as factories, retailers and wholesalers. The price index had risen 0.2 percent in January.
The renamed index was recently expanded to include services and construction. It was previously known as PPI for finished goods.
PPI now covers about 72 percent of services, which along with other factors will see it likely tracking closely the Consumer Price Index with the passage of time, according to economists.
Final demand for goods rose 0.4 percent in February. Final demand for services dropped 0.3 percent. The department said about 80 percent of the decline in its services index was due to lower margins for retailers of apparel, footwear and accessories.
In the 12 months through February, producer prices added 0.9 percent, the smallest one-year gain since May 2013.
Producer prices excluding volatile food and energy costs fell 0.2 percent.
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