Prices at the wholesale level fell again in February, down 0.5% from the month before, the fourth straight month this has happened, and is the largest drop since 2009.
The U.S. Labor Department reported on Friday nearly three-quarters of the decline in the Producer Price Index was due to a 0.5% decrease in prices for services. Prices for goods moved down 0.4%.
The drop was in contrast to a median consensus from economists of a 0.3% increase, according to Bloomberg.
While energy costs changed little during January, food prices fell 1.6%, the most in nearly two-years. When both of these volatile sectors are removed from the overall performance, the PPI fell in February by 0.5%
This latest drop in the PPI pushes it down to a 0.6% decline over the past 12 months. Year ago numbers have been falling since last August when the index was then showing a hike of 1.9% annually.
The decline was also spurred by the increased strength of the U.S. dollar against a basket of foreign currencies, which is keeping inflation off the radar. This could prompt the Federal Reserve to delay increasing short-term interest rates from near zero, because it has set an annual inflation target of 2%, well above current levels.
The bottom line, according to Sterne Agee Chief Economist Lindsey Piegza, is that ahead of next week’s Federal Reserve Open Market Committee meeting, concerns over declining price pressures continue to grow with both the Consumer Price Index and PPI now in net negative territory.
“The last time inflation pressures were this weak was more than five years ago,” she said. “The exuberance from February's employment report [showing another big monthly increase] has certainly been undermined with a bout of deflation now at the forefront of monetary policy makers' concerns.”
Consumer Sentiment Declines
A separate report, also released Friday, showed optimism among consumers dimmed a bit this month, but is still higher than it was a year ago.
The University of Michigan Survey of Consumers shows its Index of Consumer Sentiment registered 80, down 4.4% from February’s final reading, yet 14% higher than in February 2014.
Survey components measuring consumer assessment of current economic conditions and their expectations also showed drops this month from February, but higher year-over-year.
According to Surveys of Consumers Chief Economist Richard Curtin, consumer optimism slipped in early March among lower and middle income households, 6.5% from February, while confidence improved 3.2% among households with incomes in the top third.
“The renewed concerns expressed by lower and middle income households mainly involved income declines and higher utility costs as well as disruptions to shopping and businesses due to the harsh winter,” he said. “Among those with incomes in the top third, strong gains were concentrated in the near term outlook for the economy and buying plans.”
Curtin said despite the small temporary setbacks, the overall level of consumer confidence remains favorable enough to support 3.3% growth rate in personal consumption expenditures during 2015.