The Producer Price Index (PPI), another gauge of inflation that measures prices for wholesale goods and services, fell further than expected this month, throwing another curveball at the Federal Reserve as it seeks to navigate a suddenly much more complicated financial picture.
The PPI fell a fractional 0.1% in February, down from a 0.3% increase in January. Wholesale goods decreased 0.2% and wholesale services dropped 0.1%. For goods, the largest sector drop was in food, which notched a 2.2% decline, and in services, transportation and warehousing, which led with a 1.1% decrease in prices.
In testimony to Congress last week, Fed Chair Jerome Powell explicitly said he would be watching the PPI ahead of the central bank’s next meeting, scheduled to take place on March 21 and 22. Powell was explicit in his remarks—and in answering questions from members of Congress—that larger interest rate hikes were on the table, after some worrying inflation data from earlier this year.
All that went out the window, however, following the collapse of two major banks this past week. As markets shake and regulators open up investigations, the question of how the Fed will respond has become broadly uncertain.
A freeze in interest rate hikes could benefit housing in the short run, economists have said, but at the same time, more fundamental economic damage caused (or revealed) by the banks’ collapse could push the whole country into a recession.
There have been more signs that a recession could be around the corner, as retail and food service sales dropped 0.4%, according to a separate report from the Census Bureau. At the same time, a strong labor market seems to have resisted all headwinds, despite shakiness in the tech industry.
In terms of inflation, the PPI showed more relief in some particular areas that have most weighed on consumers. The wholesale price of eggs, for instance, fell 41.3% from January to February, while wholesale home heating oil dropped 13.2%. On the services side, prices for cruise and tour arrangements fell 7.8%, and computer hardware and software retailing services sank 15.3%.