US producer inflation heats up even before Middle East conflict

Producer price index increases 0.7% in February; services account for more than half of the rise in PPI. Read more at straitstimes.com.

WASHINGTON - US producer prices increased by the most in seven months in February, driven by higher costs for services and a range of goods, and could accelerate further as the war in the Middle East boosts oil prices and the tariff pass-through persists.

The stronger-than-expected Producer Price Index report from the Labour Department on March 18 also suggested that a key inflation measure tracked by the Federal Reserve for monetary policy posted a third straight month of solid gains in February.

The US-Israeli war with Iran, which started at the end of February, has sent oil prices surging more than 40 per cent. Economists expected the war’s inflationary impact to show up in the March consumer and producer price reports in April.

The US central bank is expected to hold interest rates steady at the end of a two-day policy meeting later on March 18. Fed officials will ⁠submit new economic projections, which economists expect to show upgrades to inflation estimates. Financial markets are expecting only one rate cut in 2026.

“The upshot is there is nothing in the price data that suggests the Fed would be in a position to cut again soon even if oil prices suddenly dropped back,” said economist Thomas Ryan, North America economist at Capital Economics.

The Producer Price Index for final demand surged 0.7 per cent in February, the most since July 2025, after an unrevised 0.5 per cent increase in January, the Labour Department’s Bureau of Labour Statistics said.