US wholesale inflation hits one-year high adding to pre-war inflationary concerns

US wholesale inflation accelerated to its highest level in a year in February, adding to concerns that price pressures remained high even before the Iran war began.

Data released by the US Labor Department on Wednesday showed the producer-price index (PPI) rose 0.7% month-on-month, up from 0.5% in January and well above economists’ expectations of a 0.3% increase.

On an annual basis, PPI climbed to 3.4%, against an expected 2.9%, marking its highest level since February 2025

Core PPI, which excludes food and energy, rose 0.5% in February compared with forecasts of a 0.3% increase.

On a yearly basis, core wholesale inflation stood at 3.9%, exceeding estimates of 3.7%.

Rise in PPI largely driven by increase in service costs

The rise in producer prices was largely driven by a 0.5% increase in services costs, a development likely to concern policymakers at the Federal Reserve.

Officials have previously linked much of the recent inflationary pressure to tariffs, which tend to have a more limited impact on services.

Within services, portfolio management fees—a significant component of the PPI—rose 1% in February.

Prices for securities brokerage, dealing, investment advisory and related services also saw a sharp increase of 4.2%.

Meanwhile, goods prices climbed 1.1% over the month.

The stronger-than-expected data is likely to heighten concerns about persistent inflation, particularly as geopolitical tensions continue to push up input costs.

The ongoing conflict in the Middle East has already driven a sharp increase in energy prices and disrupted global shipping routes, adding to cost pressures for businesses.

“The hotter than expected number is specific to tariffs,” Todd M. Schoenberger, CIO at CrossCheck Management LLC, said in a CNBC report, noting that metals, industrial inputs and manufacturing costs are all seeing higher prices.

“This is structural inflation, not temporary, and is likely going to impact monetary policy deep into the third quarter.”

“Add in the hotter energy prices we’ve seen since the Iran War began, which have yet to show in these reports, and Wall Street is bracing for rapidly rising prices that will clearly flow down to the consumer level,” Schoenberger continued.

Markets react as rate cut hopes fade

Futures tied to major US stock indexes declined following the release, reflecting reduced expectations of near-term monetary easing by the Federal Reserve.

Dow futures were down 0.54%, while S&P 500 futures slipped 0.48% and Nasdaq 100 futures fell 0.46% in early trading.

The data reinforced the view that the Fed may keep interest rates higher for longer, particularly as inflation indicators remain above levels consistent with its 2% target.

Why is PPI important for Fed?

While economists typically do not rely heavily on PPI as a standalone measure, components of the report feed into the personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation.

Analysts are expected to revise their PCE forecasts following the latest data.

Prior to the release, estimates suggested core PCE rose 0.4% in February, which would mark the third consecutive month at that pace—more than double the level considered consistent with stable inflation over time.

Persistent strength in PCE readings has already complicated the Fed’s policy path.

In January, core PCE stood at 3.1%, notably higher than the core consumer price index reading of 2.5% for the same period.

Geopolitical risks add to inflation uncertainty

The inflation outlook is further clouded by geopolitical developments.

The conflict involving Iran has heightened concerns about sustained increases in energy costs, which could feed through to broader inflation.

Even before the escalation, markets had widely expected the Fed to hold rates steady.

Since then, traders have scaled back expectations for rate cuts later this year, citing the risk of prolonged cost pressures.

The central bank is set to announce its latest policy decision later on Wednesday, with investors closely watching for any signals on how policymakers are balancing inflation risks against signs of a cooling labour market.