US wholesale prices came in hotter than expected in February.
The Labor Department reported Wednesday that its producer price index — which measures inflation before it hits consumers — rose 0.7% from January, and 3.4% from February 2025. The year-over-year increase was the most since February 2025.
The gains, driven partly by an sharp increase in food prices from January to February, were bigger than economists had forecast, and they occurred before the US and Israel attack on Iran pushed energy prices sharply higher.
“These are some mighty big increases, adding fuel to the political conversation about affordability,” wrote Carl B. Weinberg, the 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 surged nearly 50% since the Iran war began, and gasoline prices are following close behind.
The average price for a gallon of gasoline in the US spiked again overnight, reaching $3.84. A gallon of gas last month, before the US and Israel attacked Iran, was well under $3. Diesel prices, used heavily in transportation, are rising even faster.
Excluding volatile food and energy prices, so-called core wholesale prices rose 0.5% from January, down from a 0.8% gain the month before but more than twice what economists had expected. Compared with a year earlier, core prices rose 3.9%, the biggest jump since January 2025.
Food prices rose 2.4% from January, led by a 49% surge in vegetable prices and a 10% increase in fruit prices.
Food prices are still down compared with a year ago, but some economists see problematic trends developing on the inflation front, starting with the higher prices that producers are now paying.
Wholesale inflation also rose unexpectedly in January.
The January numbers could be written off as a blip, said Stephen Stanley, the chief US economist at Santander. In commentary Wednesday, he called the surge in wholesale prices in February a “sign of trouble.”
Stanley said companies have largely been absorbing higher costs that have arrived following tariffs implemented 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 newest economic indicator arrived on the same day that policymakers at the Federal Reserve are meeting in Washington to decide what to do about the nation’s benchmark interest rate. The rate was cut three times last year with inflation seemingly slowing, but the Fed has since stopped cutting — and it’s expected to announce Wednesday that it’s done so again.
The Fed is waiting to see whether inflationary pressures ease and whether the slumping US job market needs help from lower borrowing costs. The war with Iran has clouded the inflation picture by driving up energy prices, and investors took note of the newest figures on inflation early Wednesday.
The S&P 500, the Dow and the Nasdaq composite all reversed course and went negative at the opening bell after the producer price report and a resumption of the upward climb in oil prices.
Last week, the government issued two reports showing that inflation at the consumer level remained above the Fed’s 2% target before the US and Israel attacked on Iran.
The Labor Department reported a week ago that consumer prices rose 2.4% last month compared to February 2025. And the Commerce Department said Friday that the Fed’s favored inflation measure — the personal consumption expenditures (PCE) price index — was up 2.8% in January from a year earlier. Core PCE prices rose 3.1%, biggest increase in nearly two years.
