Spiking energy leads wholesale prices up 0.5% in February

Energy prices continued to rocket higher in February, though overall wholesale prices moderated after a record jump in January.

The Labor Department’s producer price index, which measures inflation before it reaches consumers. increased by 0.5% last month following a record jump of 1.3% the month before.

Price increases slowed despite a 6% surge in energy last month, which followed a 5.1% jump in January, the Labor Department said Friday.

Over the past year, wholesale prices are up 2.8%, the largest 12-month gain at the wholesale level in more than two years. Core inflation, which excludes volatile food and energy, rose 2.5% over the past 12 months.

Both readings are above the Federal Reserve’s 2% target for inflation. Some economists fear that inflation, which has been dormant over the past decade, could begin to rise under the extra demand generated by the government’s new $1.9 trillion stimulus package signed into law Thursday.

Others disagree, pointing out that there are 9.5 million fewer jobs in the American economy than there were before the pandemic hit a year ago, and argue that unemployment will keep a lid on inflation.

“While underlying price pressures will inevitably heat up amid a healthier, fiscally stimulated economy … we believe inflation is unlikely to spiral out of control,” said Mahir Rasheed, a senior economist with Oxford Economics. “The Fed should therefore look through the transitory spike and stick to a very dovish policy.”

Fed policymakers meet next week and the expectation is that they will keep their benchmark policy rate unchanged at a record low of zero to 0.25%.

Fears of higher inflation have driven interest rates on bonds higher in recent weeks but Fed officials including Chairman Jerome Powell have insisted that while inflation may jump temporarily this spring as the economy re-opens, they see no signs of sustained price increases.

For February, food costs at the wholesale level rose 1.3%, the biggest monthly gain since September. A total of 40% of the rise in goods prices in February was attributed to a 13.1% jump in gasoline prices.

The jump in food costs was driven by higher prices for beef and eggs while the cost of fresh and dry vegetables fell by 16.7%.

Earlier this week, the U.S. reported that consumer prices rose 0.4% in February, the biggest gain in six months, also because of rising energy prices. However, core inflation at the consumer level posted a much smaller 0.1% gain.

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4 thoughts on “Spiking energy leads wholesale prices up 0.5% in February

  1. The 6% rise in energy costs is accounted for by President Biden’s cancellation of the Keystone XL Pipeline Project and other executive orders that close oil exploration on federal lands. Energy supply in the U.S. is being restricted. We have been a net exporter of energy for the past few years due to loosening of restrictions on fossil fuels exploration by the Trump Administration, which served to give the U.S. leverage globally by not being dependent on energy imports. That energy independence has not been in play since before the 1973 oil embargo, until Trump took office. This will likely all change now as supply of fossil fuels available in the U.S. shrinks and we return to importing energy. This will continue to increase the price of energy, and be a leading cause of inflation as well. President Biden likely desires that as it ushers in more energy alternatives to fossil fuels by making them more price competitive with the inflated cost of fossil fuels. Time will tell if this is a wise strategy. In the meantime, consumers will deal with decreased consumer goods purchasing due to higher inflation.

  2. Good analysis, Mark…as if Biden had the capacity to think anything through beyond what his wealthy, globalist, America-despising leftist handlers are telling him on a given day…or hour, given his declining mental capacity!