US core PPI falls to 3.4%, lower than expectations

The producer price index (PPI), which tracks what producers get for their goods and services, showed no increase for the month, following January’s upwardly revised 0.6% gain. Economists had expected a 0.3% increase, but actual numbers came in lower.

Core PPI, which excludes food and energy, fell 0.1%, marking the first decline since July. Analysts had forecasted a 0.3% rise, making this a major miss.

Core prices that also exclude trade services managed a 0.2% gain. The report follows the consumer price index (CPI) data released the day before, which showed a 0.2% increase for February, bringing the annual inflation rate to 2.8%, slightly lower than January’s figures.

Stock market futures react while Treasury yields stay elevated

Stock market futures responded immediately. S&P 500 futures trimmed losses after the report, while Dow Jones Industrial Average futures still showed a 71-point drop (0.2%).

Nasdaq 100 futures declined 0.4%, reversing some of the previous day’s gains. The reaction was mixed as traders tried to assess what the latest inflation data meant for Federal Reserve policy.

Treasury yields stayed elevated as investors maintained expectations that the Fed will keep rates steady at its next meeting on Wednesday. The market is already pricing in NEAR 100% odds that rates won’t change.

Policymakers have emphasized a cautious approach as they monitor inflation trends and potential economic risks tied to Donald Trump’s trade policies.

Trump shook markets earlier Thursday when he announced plans to impose 200% tariffs on European alcoholic imports in retaliation for the EU’s 50% tariff on American whisky.

“This will be great for the wine and champagne businesses in the U.S.,” he posted on Truth Social, triggering fresh concerns about a worsening trade war. The announcement weighed on market sentiment, sending futures lower before the PPI report helped ease concerns.

Fed rate cut expectations remain despite weaker inflation data

The Federal Reserve has been closely monitoring inflation as it weighs potential rate cuts during the fourth quarter of this year.

February’s PPI report showed that headline producer prices were up by 3.2% year over year, and down from by 3.7% in January. The CORE PPI was at 3.4%, after dropping by 0.4 percentage points from the month before.

Despite signs of cooling inflation, markets still expect the Fed to begin cutting rates as early as June. Barclays, for one, expects at least two more quarter-point reductions before the year’s over.

Some policymakers, however, are concerned about how Trump’s fiscal and trade policies will affect economic growth and inflation in the months ahead.

Within the PPI report, a 0.2% drop in services prices offset a 0.3% rise in goods prices. The BLS noted that two-thirds of the increase in goods came from a staggering 53.6% surge in chicken egg prices.

The egg market has been hit hard by avian flu, which has tightened supply, though reports indicate that prices have started to stabilize in March.

On the services side, over 40% of the decline came from a 1.4% drop in margins for machinery and vehicle wholesaling. This reflects slowing demand in key industrial sectors, as businesses and consumers pull back on spending.

Investors have remained cautious despite the cooling inflation data. The Nasdaq saw a sharp reversal after a 1.2% gain on Wednesday, fueled by strong performances from Nvidia and Palantir Technologies.

However, the broader markets continued to struggle. The Dow Jones Industrial Average closed 0.2% lower on Wednesday, marking its third straight losing session. The S&P 500, despite a 0.5% increase Wednesday, is still heading for a rough week.

So far, the S&P 500 and Nasdaq are both down 3% for the week, while the Dow has dropped 3.4%, its worst week since March 2023.

The S&P 500 actually entered correction territory for a second there earlier this week, falling by 10% from its February all-time high.

But as Cryptopolitan reported on Wednesday, Trump has dismissed the stock market as a “fake economy.” He no longer sees it as a measure of his economic victory, like he did during his first term in office.

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