Producer Prices: Pipeline Pressures Ease

Bottom Line:  Producer prices fell in February, with core prices flat, well below expectations. After strong gains in January, producer prices in February were led lower by food prices, as well as energy. But perhaps even more important than the declines in the goods category, final demand services prices fell for the second month. Warehousing and transportation prices, a source of significant price inflation a year ago, continued to fall sharply as margins in the sector declined with slower goods consumption. Overall, headline producer prices have decelerated sharply, flat over the last three months after gains of 4.5+% in the prior twelve months. Core producer prices were running below 2% annualized in the three months that ended in February, down from just under 4.5% in the prior twelve. While there will be volatility and lags for these kinds of readings to come through to consumer prices, the disinflationary trend in producer prices suggests we should continue to see a disinflationary trend in consumer prices.