US PPI data: Wholesale inflation jumps to 3.4% in February; food costs drive biggest rise in a year

US wholesale prices rose more than expected in February, reflecting mounting inflationary pressures even before the recent surge in global energy prices linked to the Iran conflict, according to data released by the Labor Department as reported news agency AP.The department reported on Wednesday that its producer price index (PPI), which measures inflation at the wholesale level before it reaches consumers, increased 0.7% from January and rose 3.4% from February 2025. The year-on-year increase was the highest since February 2025.The gains exceeded economists’ forecasts and came before the US and Israel’s attack on Iran pushed oil prices sharply higher, raising concerns about further inflationary risks.

“These are some mighty big increases, adding fuel to the political conversation about affordability,” wrote Carl B. Weinberg, chief economist at High Frequency Economics. “And of course, energy prices will spike higher in the March report, thanks to the war in Iran and the blockade of the Strait of Hormuz.”Oil prices have climbed nearly 50% since the Iran war began, with gasoline prices also rising sharply. The average price for a gallon of gasoline in the US spiked again overnight to $3.84, compared with well under $3 last month before the US and Israel attacked Iran.

Diesel prices, widely used in transportation, are rising even faster.Excluding volatile food and energy components, so-called core wholesale prices increased 0.5% from January, down from a 0.8% rise in the previous month but still more than twice what economists had anticipated. On an annual basis, core prices rose 3.9%, the steepest gain since January 2025.Food prices rose 2.4% during the month, led by a sharp 49% surge in vegetable prices and a 10% increase in fruit prices.

Although food costs remain lower than a year ago, some economists warned that emerging cost pressures could worsen inflation trends in the months ahead.Wholesale inflation had also risen unexpectedly in January. While the earlier uptick was initially seen as temporary, the February data pointed to deeper concerns, analysts said.Stephen Stanley, chief US economist at Santander, described the latest increase as a “sign of trouble.”

He noted that companies had largely absorbed higher costs linked to tariffs introduced by the Trump administration.“The problem is the (producer price index) is signaling that this is not a one-off wave of costs that would necessitate a single set of consumer price adjustments,” Stanley wrote. “Instead, the pipeline pressures continue to build.”The inflation data came as policymakers at the Federal Reserve met in Washington to decide on the benchmark interest rate.

The central bank had cut rates three times last year when inflation appeared to be moderating, but is now expected to keep borrowing costs unchanged again.The Fed is assessing whether price pressures will ease and whether weakness in the labour market may warrant lower rates. However, the war with Iran has complicated the outlook by pushing energy prices higher, prompting investors to react cautiously to the latest inflation figures.US equity markets also reflected the concerns. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite reversed early gains and slipped into negative territory after the release of the producer price data and renewed increases in oil prices.Recent government reports have already indicated that consumer inflation remains above the Fed’s 2% target. Consumer prices rose 2.4% last month compared with February 2025, while the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, increased 2.8% in January from a year earlier. Core PCE inflation rose 3.1%, the largest rise in nearly two years.