Inflation Ghost Returns! US February PPI Skyrockets 3.4% YoY, Commodities Rebound Weighs on Rate Cut Expectations

According to the latest report released by the U.S. Bureau of Labor Statistics (BLS) on the evening of the 18th Taipei time, the U.S. Producer Price Index (PPI) for February increased by 0.7% month-over-month, far exceeding market expectations of 0.3%. The data shows that inflation is demonstrating remarkable resilience as the upward momentum shifts from the service sector to goods. The annual growth rate reached 3.4%, a one-year high, which is undoubtedly a heavy blow to the Federal Reserve (Fed), trying to balance economic growth and price stability.
(Background: Fed’s mouthpiece warns: Fed has been hit by inflation for five years, Middle East conflicts wipe out rate cut expectations)
(Additional context: U.S. January PCE data to be released tonight! Core inflation expected to surge to 3.1%, shaking up rate cut timetable?)

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• Sharp 1.1% rise in commodity prices driven by fuel and consumer demand
• Core PPI jumps to 3.9%, “stickiness” of inflation becomes rate cut killer
• Fed dilemma: rate cut path may be forced to delay
• Key data on February PPI

The U.S. fight against inflation faces new variables. According to data officially released by the U.S. Bureau of Labor Statistics (BLS) on the morning of March 18 (Eastern Time), the PPI for February showed a much stronger increase than expected, indicating upstream supply chain price pressures are re-emerging.

Sharp 1.1% rise in commodity prices driven by fuel and consumer demand

The most alarming aspect of this report is the robust rebound in commodity prices. The February commodity PPI rose by 1.1% month-over-month, marking the largest increase since August 2023. This surge was mainly driven by energy and basic consumer goods, including significant increases in vegetable, diesel, egg, gasoline, and jet fuel prices.

While service sector prices increased by 0.5% month-over-month, the smallest gain in three months, “travel accommodation services” soared by 5.7%, indicating that despite manufacturing pressures, service prices still have strong support. This “goods-to-services” inflation pattern makes the overall index particularly tricky.

Core PPI jumps to 3.9%, “stickiness” of inflation becomes rate cut killer

Excluding volatile food, energy, and trade services, the February “core PPI” rose by 0.5% month-over-month, higher than the expected 0.3%; the annual rate jumped to 3.9%.

This data is not good news for investors. The final demand PPI annual increase of 3.4% has reached the highest since the same period last year, confirming that inflation is not dissipating as quickly as expected but showing strong “stickiness.” With upstream production costs unable to be effectively eased, this will eventually feed into consumer prices (CPI), forcing markets to reassess the Fed’s interest rate path.

Fed dilemma: rate cut path may be forced to delay

The market had generally expected the Fed to have more aggressive rate cuts in the first half of 2026, but the strong PPI data undoubtedly constrains policymakers’ options. Analysts warn that if upstream inflation pressures persist, the Fed may adopt a “higher for longer” interest rate strategy, even delaying rate cuts.

Following this data release, U.S. Treasury yields rose in the short term, and bets on rate cuts in April and June have shown clear signs of wavering. Against the backdrop of a “wartime economy” and “supply chain restructuring,” the long-term tug-of-war between inflation and interest rates is far from over.

Key data on February PPI