US producer prices unchanged in February

US producer prices were unexpectedly unchanged in February, but the cooling trend is unlikely to be sustained as tariffs on imports are expected to raise prices of goods in the coming months.

The unchanged reading in the producer price index for final demand last month followed an upwardly revised 0.6 percent increase in January, the Labor Department's Bureau of Labor Statistics said on Thursday.

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Economists polled by Reuters had forecast the PPI rising 0.3 percent after a previously reported 0.4 percent increase in January. In the 12 months through February, the PPI climbed 3.2 percent after rising 3.7 percent in January.

Data on Wednesday showed a smaller-than-expected increase in consumer prices in February. But they contained unfavorable details of some components that go into the calculation of the Personal Consumption Expenditures (PCE) price indexes, which are tracked by the Federal Reserve for its 2 percent inflation target.

President Donald Trump has ignited a trade war, increasing tariffs on goods from China to 20 percent, with Beijing retaliating with duties of its own.

Trump imposed a new 25 percent duty on Canadian and Mexican imports, before providing a one-month exemption for goods that meet the rules of origin under the US-Mexico-Canada Agreement on trade. Enhanced steel and aluminum tariffs drew swift retaliation from Europe and Canada.

Economists expect the slew of tariffs by the Trump administration, which has sent consumers' inflation expectations soaring, to start showing in the data in the months ahead.

For now, however, the moderation in price pressures should give the Federal Reserve cover to keep its benchmark overnight interest rate in the 4.25 percent-4.5 percent range next Wednesday, having reduced it by 100 basis points since September.

Financial markets expect the US central bank to resume cutting borrowing costs in June after it paused its easing cycle in January, as the escalation in trade tensions threatens the economic expansion. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.

REUTERS