US producer prices expected to show slight increase in February

Energy Associated Press

The Labor Department reports on U.S. producer price inflation in February. The report will be released Friday at 8:30 a.m. Eastern.

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MODEST INCREASE: The expectation is that wholesale prices rose a slight 0.2 percent in February, according to a survey of economists by the data firm FactSet.

BIG DROP: Wholesale prices tumbled 0.8 percent in January, the biggest drop in a data series that goes back to late 2009 when the Labor Department changed the calculation method for its Producer Price Index. The index measures inflation before it reaches the consumer. The big decline to start the year was led by a 24 percent drop in gas prices, the biggest price dip since a 25.5 percent tumble in December 2008, when the country was mired in recession.

For January, core wholesale prices, which exclude volatile energy and food costs, were down 0.1 percent. Over the past 12 months, wholesale prices are unchanged while core prices are up just 1.6 percent.

Wholesale prices fell for three straight months — November, December and January — and had been down in five of the past six months, reflecting big declines in energy costs.

Gas prices fell to nearly a six-year low in January of $2.03 a gallon, according to AAA, but since that time prices have been rising with the nationwide average for a gallon of regular now at $2.45, up from $2.23 a month ago but still below the average a year ago of $3.49.

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Robust hiring in the past 12 months and lower gas prices lifted consumer confidence in January and February to its highest levels since the recession. But those trends have yet to boost consumer spending this year, a key driver of economic activity. The government reported that retail sales fell for a third month in a row in February as harsh winter weather depressed shopping.

But many analysts look for those declines to reverse in coming months with the expectation that the economy is still likely to turn in its strongest growth this year in a decade while overall inflation stays modest.

The Federal Reserve meets next week and it is widely expected that officials will drop language that they have been using, such as "patient," as they move toward raising a key interest rate from a record low. However, the belief is that the first rate hike will still not occur until June at the earliest and possibly not until September or even later.

Fed Chair Janet Yellen has said the central bank does not want to start raising interest rates until it feels more confident that inflation will rise from its low levels of the past three years.