US producer prices up; inflation expectations ease

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    WASHINGTON- US producer prices increased strongly in February, leading to the largest annual gain in nearly 2-1/2 years, but considerable slack in the labor market could make it harder for businesses to pass on the higher costs to consumers.

    That was supported by a survey on Friday showing an easing in consumers’ near-term inflation expectations early this month, even as their confidence in the economy rose to a one-year high.

    Receding new COVID-19 cases, an acceleration in the pace of vaccinations and more pandemic relief money from the government are seen allowing wider economic re-engagement in the spring.

    Inflation is expected to accelerate in the coming months and exceed the Federal Reserve’s 2 percent target, a flexible average, by April. Part of the anticipated spike would be the result of price declines early in the pandemic washing out of the calculations. Many economists, including Fed Chair Jerome Powell, do not expect the strength in inflation will persist beyond the so-called base effects.

    “Beyond a rise in the metrics this year on base effects and a fuller reopening of the economy that will revive demand, price pressures are unlikely to keep accelerating, given an incomplete recovery in the labor market,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.

    The producer price index for final demand rose 0.5 percent last month, with the costs of energy products and food surging, the Labor Department said. That followed a 1.3 percent jump in January, which was the biggest advance since December 2009.

    In the 12 months through February, the PPI accelerated 2.8 percent, the most since October 2018. The PPI increased 1.7 percent year-on-year in January. Last month’s rise in the PPI was in line with economists’ expectations.

    Manufacturing and services industries have been flagging higher production costs as the year-long pandemic gums up the supply chain. Surveys this month showed measures of prices paid by manufacturers and services industries in February racing to levels last seen in 2008.

    These inflation jitters have boosted US Treasury yields.

    The government has provided nearly $6 trillion in relief since the pandemic started in the United States in March 2020, with President Joe Biden on Thursday signing legislation for his $1.9 trillion package. At the same time, Fed is pumping in money through monthly bond purchases, raising fears in some quarters of the economy overheating.

    But the worst recession since the Great Depression, which started in February 2020, has left at least 20.1 million Americans on unemployment benefits.