US wholesale inflation flat in February amid looming trade war risks

US wholesale inflation showed signs of slowing down in February, indicating that price pressures may be easing. However, this trend could be short-lived as President Donald Trump escalates his trade wars with global partners, potentially driving inflation higher.
The Labour Department reported Thursday that the Producer Price Index (PPI), which measures inflation before it reaches consumers, remained unchanged from January. This followed a 0.6% increase in January. Compared to the previous year, producer prices rose 3.2%, a decrease from the 3.7% annual increase reported in January, news agency AP reported.
Excluding volatile food and energy prices, core wholesale prices dropped by 0.1% in February, marking the first decline since July. Core producer prices were up 3.4% from a year earlier, down from a 3.8% increase in January. These results were lower than economists' expectations.
This report comes as President Trump intensifies his trade wars, which could disrupt the progress made in controlling inflation. He has implemented 25% tariffs on foreign steel and aluminium and placed a 20% levy on Chinese imports. In the coming weeks, additional tariffs of 25% will be imposed on Canada and Mexico, and Trump is also considering “reciprocal tariffs” that would match taxes imposed by other countries on US products.
On Thursday, the president threatened to impose a 200% tariff on European wine, champagne, and spirits if Europe proceeds with tariffs on US whiskey.
Many major retailers have warned that higher costs, partly driven by Trump's tariffs, could lead to reduced consumer spending this year.
In a separate report on Wednesday, the Labour Department said that consumer inflation slowed for the first time since September. The Consumer Price Index (CPI) rose 2.8% year-over-year, down from 3% in January. Core consumer prices, which exclude food and energy, increased by 3.1% from a year ago, the smallest annual rise since April 2021.
Wholesale gasoline prices dropped by 4.7% in February, while food prices increased by 1.7%, driven by a sharp 28% rise in the price of eggs.
Following three rate cuts in late 2024, the Federal Reserve is expected to leave its benchmark interest rate unchanged in its upcoming meeting. Analysts Carl Weinberg and Mary Chen of High Frequency Economics noted, “The Fed will not see any argument for pushing interest rates lower or sooner based on today’s figures.” They emphasized that the Fed is now more focused on the potential impact of tariffs on future food prices than on the rise in egg prices reflected in recent PPI numbers.
Wholesale prices are an important indicator of future consumer inflation trends, and economists closely monitor them, especially since components like healthcare and financial services feed into the Federal Reserve's preferred inflation measure—the Personal Consumption Expenditures (PCE) index. Thomas Ryan of Capital Economics pointed out that some wholesale prices, such as hospital costs and international airfares, were higher than expected in February, which could indicate further inflationary pressures.