Worst 6-month PPI inflation since August 2022 (+5.3% annualized). After multiple rate cuts by the Fed, inflation heats up everywhere: services, food, energy, other goods.
By Wolf Richter for WOLF STREET.
The Producer Price Index final demand for services jumped by 0.54% (+6.7% annualized) in February from January, seasonally adjusted, after spiking by 0.82% (+10.3% annualized) in January, and by 0.59% (+7.3% annualized) in December, which pushed the six-month average to +5.8% annualized, the worst since August 2022, according to data from the Bureau of Labor Statistics today.
The services PPI weighs 68% of the overall PPI. It drives the core PPI (which excludes food and energy components), and even the overall PPI (which includes food and energy). The overall PPI was further driven on a month-to-month basis by big spikes in food prices (+2.4% not annualized!) and energy prices (+2.3% not annualized!).
Within the services PPI:
- Trade services PPI (weighs 19% in overall PPI): +0.4% month-to-month not annualized, after a big spike in the prior month.
- Transportation & warehousing services PPI (weighs 4.9% in overall PPI): +0.3% month-to-month not annualized, after big spike in the prior month.
- Other services (weighs 38% in overall PPI): +0.6%.
Year-over-year, the services PPI accelerated to 3.8%, the fourth month in a row of acceleration.
The low point, the point of the coolest recent services PPI inflation, was in December 2023 at 1.8%. The inflation rate has more than doubled since then.
PPI inflation has been broadly accelerating since 2023, with a lull in early 2025, and a steeper acceleration over the past six months.
Food inflation, after the massive spikes in 2021 and 2022, had calmed down a lot. But that ended mid-2025, when food prices started to accelerate their increases. Prices of energy products had plunged through 2025, but are now spiking.
And core goods prices started to accelerate in 2024 and continued to accelerate in 2025, in part fueled by tariffs that companies were paying for.
The chart below shows PPI inflation on a year-over-year basis for overall PPI (green double line), core PPI (purple line), services PPI (red line), and core goods PPI (yellow line).
The services PPI (red) and the core PPI (purple) nearly overlap because core PPI is dominated by the services PPI, with core goods PPI (yellow) being a much smaller factor in core PPI.
And the Fed has been cutting its policy rates during this acceleration period, starting in September 2024.
Goods prices.
The PPIs final demand for both food and energy surged in February from January:
- PPI for Food: +2.4%;
- PPI for Energy: +2.3%.
The Core Goods PPI final demand (excludes food and energy) rose by 0.35% in February from January (+4.3% annualized), after a huge spike in the prior month.
The 6-month average rose by 4.8% annualized for the second month in a row. Both were the worst since September 2022.
Companies are trying to pass tariffs on to each other through the goods categories at various stages of the PPI. But consumer-facing companies have resisted price increases because consumers have resisted price increases, and consumer-facing companies had trouble passing on higher costs to consumers without losing sales.
Year-over-year, the core goods PPI jumped by 4.2%, same increase as in January, and both were the worst since March 2023.
Core PPI Final Demand, which includes all goods and services except food and energy, jumped by 0.49% in February from January (6.1% annualized) seasonally adjusted, after spiking by 0.81% (+10.2% annualized) in January, and by 0.53% (+6.6% annualized) in December.
The six-month average accelerated to +5.6% annualized, the worst since August 2022.
Year-over-year, core PPI accelerated to +3.9%, the worst since January 2025, and both were the worst since February 2023.
The overall PPI Final Demand, fueled by the spike in food and energy prices, and the surge in services prices, jumped by 0.68% month-to-month (+8.5% annualized).
The six-month average jumped to +5.3% annualized, the worst since August 2022.
Year-over-year, the overall PPI accelerated to +3.4%, as the past six months of month-to-month increases are starting to push the 12-month reading higher:
The Fed has a complex and growing inflation problem on its hands.
Services inflation, goods inflation, food inflation, and now also energy inflation have all been heating up.
Today’s PPI (producer-facing inflation) added another data point, to what the Fed-favored “PCE price index” (consumer-facing inflation), and the GDP’s “Price Index for Gross Domestic Purchases” (inflation in the overall domestic economy facing consumers, businesses, and governments) have already been saying: Inflation is broadly accelerating.
And if the Fed is talking about rate cuts in this environment, it is clearly stoned.
The Fed-favored core PCE price index, driven by core services, jumped by 0.36% (+4.5% annualized, blue line) in January, even more than in December (blue line).
Year-over-year (red line), it accelerated to 3.1%, the worst in nearly two years. It has been zigzagging higher and ever further away from the Fed’s 2% target since May 2025 (data was released last week; my detailed report is here).
The inflation measure for the domestic economy, the Price Index for Gross Domestic Purchases, which is part of the GDP data and reflects inflation adjustments in GDP except for imports, accelerated to 3.8% in Q4, the worst in three years: domestically bred inflation in the overall US economy:
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Hoping this is a repeat of the 2023 into 2025 scenario, and it starts dropping again, but it likely isn’t.
Again, the FED NEVER should have stopped raising rates. They did so prematurely, and then cut prematurely. They are destroying the financial lives of the masses.
When was the last unexpected Fed rate cut – the one that surprised everyone? The last time what they didn’t meet expectations?
The Jumbo Rate Cut 🤔
Everything they do is tilted towards causing more inflation. Even today when they kept rates unchanged, they signaled a rate cut. These guys are a f**king cancer upon society.
We need a rate cut like I need broken bottle glass in the eye.
What makes me crazy is this “we have to balance inflation with unemployment” BS. It’s 4.4%; that’s historically low. I’d call it damn near unnatural, and not normally sustainable without consequence and that makes me TAH 🤷♂️
There is no need to cut rates to save bloated company labor. If nothing else, people will draw those favorable rates to accelerate AI-invested RIFs.
Crazy times man.
Inflation makes the huge US debt worth less. If you own any of it you get paid back in money with a lot less purchasing power. Inflation is kind of a tax on US debt holders.
The yield is supposed to compensate investors for the loss of purchasing power plus some, which is why yields have been rising, because investors want to be compensated more for potential inflation in the future. The risk for investors is that the yield (4.3% on a 10-year Treasury now) won’t be enough to provide for an adequate “real” return over the next 10-years.
Taylor rule says rates should be exactly one quarter point higher than they are right now. So yeah they should raise rates, but really just once for now unless things continue to get worse.
I agree. The middle class is fading fast. Covid government policies initiated the biggest transfer of wealth since Roman times. The trillionaires and multi billionaires will ultimately rule.
Nice timing—near the start of the current Fed Reserve meeting. Fingers crossed that they stop ignoring the inflation warning signs and start increasing rates.
Fire up the press conference zapper!
For the bingo card: will Trump make up a new name for Powell, or will he continue to be “Too Late Loser”?
We had fantastic rates, low rates going lower, they were going to be the best you’ve ever seen that’s what they’re telling me. TOO LATE
J Powell said he will refuse to leave the Fed even after his term expires. They will have to scrape him off the walls to get rid of him. When he announced this the market dropped 300 points. He wants to destroy the country. That’s his legacy.
He didn’t say that. What he said is that he would stay on as pro tem chair until the new chair is confirmed in the Senate. And he pointed out that that’s what the law says.
He also said he would not step down from his job as a Federal Reserve governor until the criminal investigation is “truly over”:
https://www.cnn.com/2026/03/18/us/video/powell-fed-quest-vo-sot-031804pseg1-cnni-business-fast
He’s smarter than we give him credit for.
Also, the stock market didn’t drop because he said this. It dropped because crude oil prices rose by nearly 4% today, leading to worries about stagflation.
I mean he’s still just 1 of 12 in the voting. I’m not sure why there’s so much emphasis on Powell controlling more levers than he does- even less so if he’s not chair after May.
I swear the focus on the FOMC Chair seems to illustrate a lack of short term memory capacity by the average ‘Merican.
That said, the hawks/doves chart shows that the doves will be in control for at least the next 3 years. I expect 3-5% average inflation over that time.
Fire is Burning
The second wave of inflation is just getting started. Thanks Wolf!
Short TLT, ZROZ, or EDV.
Long term rates will rise even if the CPI is manipulated downward. That trick doesn’t even work in basket case countries.
Just getting started, or has it already on it’s journey?
Just getting started.
Expectation Management:
Federal Reserve’s actions: Powell & Company literally teach the proletariat that interest rates control inflation, that the Federal Reserve is concerned about inflation & jobs that are economic inverses of each other. With jobs overheated, the Federal Reserve drops rates before inflation is lowered even to their worker skimming rate of 2%.
Psychology: AI lists New York times +3: “Federal Reserve held interest rates steady at 3.5%–3.75% for the second consecutive meeting, citing economic uncertainty and inflation risks stemming from the conflict in Iran and rising oil prices.”
The psychology for the serfs is that doing nothing to stop inflation is actually proactive. The bar has been set by propaganda to a rate cut, that by the Federal Reserve’s own teaching would make inflation worse. The Federal Reserve has the masses eating out of their hand like Pavlov’s dog, happily salivating for nothing; and accepting being skimmed like the mafia mob at an old fashioned casino for 2% a year (target).
The serfs are really going to feel it when the USD crashes. We’re already down -10% with probably another 20 to go.
All this effort is going into postponing the day of reckoning.
“The Federal Reserve has the masses eating out of their hand like Pavlov’s dog”
Yes, nobody ELSE was feeding the dog!
These conversations/ comments seem to assume that there’s “choice” in these matters?
Much like there’s choice involved in the weather, illness, war or death/ dismemberment?
Yes, on some level: just not mine.
“And if the Fed is talking about rate cuts in this environment, it is clearly stoned.”
They are not stoned at all. They know what their master wants and they value their extremely cushy jobs.
Do you think these creatures want to get up on a freezing Winter’s morning, and drive to Walmart to spend 10 hours ringing up customers behind a cash register?
Do you think they want to work a shift in an Amazon warehouse?
Heck no. They’ve got it made. As long as they kowtow to whatever the current party line happens to be, a life of preference and privilege awaites them.
Your point makes it all the more curious that Powell referred to “the people we serve” instead of “the public” or the hackneyed “American People.”
“On the question of whether I will then continue to serve as the governor after my term ends and after the investigation is over, I have not made that decision yet, and I will make that decision based on what I think is best for the institution and for the people we serve.”
Nice description of the government worker in the good old USA.
Watching today’s press conference — malpractice by the reporters not pressuring Powell on services inflation and letting him continue to characterize this as a goods and housing problem
Over a year ago inflation was going down, GDP very strong, job market good, sentiment strong. What have happen? What are the causes of the decline?
GDP growth in Q3 was HOT. In Q4 it was cold because government spending collapsed due to the shutdown. These not-spent funds are going get spent in Q1 and Q2, on top of the normal government spending, and government spending will jump. We discussed at the time. Should have read that GDP article.
Consumer spending was fine in Q4 despite the chaos of the government shutdown.
“stoned” is one way to look at it. Clueless lackey spittle is another.
“James Bullard, former St. Louis Fed president, believes that while headline inflation may rise due to oil price shocks, core inflation, which excludes food and energy prices, is not expected to increase significantly. He suggests that stable inflation expectations will help mitigate the overall impact on inflation from rising oil prices.” There lots more comments like this today but yahoo has exorcised those mostly since the PPI news broke.
Wolf, is government spending playing an outsized role in its contribution to GDP now versus historically? I started reading your page in 2020 and it seems since then that’s the case but figured I’d ask.
Thank you!
Nope.
https://fred.stlouisfed.org/series/A822RE1Q156NBEA
That’s a BS point. You have no idea what you’re looking. What you cited is a percentage share figure. it has zero to do with GDP. Here is GDP, government consumption expenditure and investment in trillion $ and % change from prior quarter. That IS part of the GDP forluma.
All governments:
-5.8% Q4
-$60 billion QoQ
Federal Nondefense spending collapsed by 24.1% in Q4 annualized rate, defense spending plunged by 10.8% in Q4.
The chart shows total government, including state and local (whose expenditures rose by 2.4%). I discussed all this here in my GDP article:
Does that chart include money going to the pentagon and military contractors? Trump wants 1.5 TRILLION just for the war machine, are we all to believe that will not count or impact inflation?!?
LOL!
Yes.
What is your definition of a strong job market and what time horizon?
UE is 4.4% which is near all time lows. 25-54 labor force participation is 83.9 which is near all time highs.
Exactly! Raise those damn rates!
The market is going to force the Fed’s hand, and may already be, but then again, The Fed, and the Federal Reserve Note, may be becoming irrelevant anyway.
Good point. “Strong job market” is mere rhetoric, with no operationalized, specific definition.
The issue is the average swing voter is perpetually dissatisfied with their economic position (regardless of any realities or their own errors). They can’t figure out the causes of their dissatisfaction just like they can’t figure out their political values. So no politician can run on the claim the the economy is strong. Therefore it is always weak.
Well,have personally seen the diesel/gas prices rise so that will add fuel to the fire(pun intended),feel the mideast situation does not cool soon will get much worse,have a full pantry at minimum.
“And if the Fed is talking about rate cuts in this environment, it is clearly stoned.”
Powell said he is a big fan of the Grateful Dead. If you have ever been to one of their concerts, you will leave stoned out of your mind, whether you were smoking or just breathing.
Some grocery items imported from France just doubled in price. Example: Imported jam went from $5.95 to $9.99 What the f$ck is this all about?
1. You’re buying jam (mostly sugar) imported from France for $9.99? You should pay $100 penalty. You got a deal at $9.99.
2. This BS just kills me.
3. That’s why we need need to triple the tariffs, and quadruple them on French jams, to knock this BS out of your head.
Wolf would have us drink Budweiser rather than Spaten or Paulane, or eat Velveeta rather than French Brie!😂
Dude, you accidentally slugged at the wrong guy. America makes the best beers in the world, and it’s not Budweiser. There are about 10,000 craft brewers in the US, and many of them make absolutely delicious IPAs. Some of the brewers went to Germany and taught German brewers how to brew IPAs, and BRLO, a new US-style craft brewer, is one of them: it makes a very nice IPA, brewed in Berlin. Sounds like you need to get out a little more.
If you drink Spaten, you’re drinking Big Beer, same as Budweiser, as both brands are owned by Anheuser-Bush InBev, the largest brewer in the world 🤣
Germany does have some excellent beers from small breweries, but it’s not Spaten. On my last trip to Germany in 2023, to Franconia, I discovered quite a few nice ones. They’re very proud of their malt. Takes some getting used to for IPA drinkers though.
And it’s Paulaner, not Paulane.
And if you want to drink a beer of your choice — even Spaten would probably work — out of an awesome WOLF STREET beer mug, go to the donation page to find out how and have a look at the mug.
The US also has a lot of small creameries that make excellent cheeses, all kinds of cheeses. If you’re in the Bay Area, check out the creameries in Sonoma County. Google them! You can do your own cheese tour… it’s really fun and beautiful. I’ve had great cheese from small creameries in Wisconsin, in Oregon, etc. You just need to get out of the house a little.
I like the Lagerado by Odell, and the Prost Pilsner: Both brewed here in Colorado.
There’s some very tasty imports to be sure.
Same with cheese. There’s a local company called “Rocking W Cheese”: excellent variety, and all made in Colorado.
Remember how Americans can do stuff too!?!
I switched to the house brand for jam which is $3.99 vs $9.99 for the French imported brand.
Kudos!!!
What a mess- like multiple pots on the stove all boiling over again.
Not to worry, the Fed is data driven:
“Now that’s balance, OK, but, you know, I would say it does have a feel of downside risk, and it’s not a really comfortable balance.”
“We feel like where we are now is just kind of on that borderline, the higher borderline of restrictive versus not restrictive.”
“There’s also just the feeling that we haven’t seen, you know, the progress that we had hoped for on core goods…”
I wrench on mine and my family’s vehicles, and keep all my receipts for parts going back for years.
Just warrantied a failed trailer brake module that I bought last Sept. for $85. Barely 6 months later it is $119. Glad the junk part had lifetime warranty.
The last 5 years or so car part prices have exploded, and the quality has dropped exponentially. My receipts and records show double and triple price increases in just a few years for the exact same part, same brand, etc.
In addition the original OEM part that lasted 10-20 years, once replaced does not last nearly as long. Even when replaced with “quality” OEM parts.
Alternators, starters, and modules seem to be the biggest offenders in poor quality control these days.
As a general rule, the mid 90’s to about 2012 seem to be the sweet spot for vehicle longevity.
Give me any toyota with a 20-22R motor and the litlle bugger will go forever,same with Volks diesels in rabbits in the 80’s.
Yep,parts are going up but at least we do not markup and pay also high rates(excepting oily/cut up hands)for wrenching!
I literally when used to get parts from stores made em bench test starters and alternators on the spot,twice they were junk!
The world is burning and we are debating beers and cheese(oh,and don’t forget French Jam!).
The descent to insanity continues!
Beer is good.
Cold beer is better.
Free beer is best.
I have live my entire life on that, and it has worked for me so far.
Free beer & free cheese curds…..now that is the best.
“Oooh Wolf, your sandwich is ready – exquisite French Jam, and Turkish peanut butter! 🥪
Oh yes – and a pint of Belgian ale to wash it down.” 🍺