Headline PPI rose .3% m/o/m in February after a .6% rise in January, above the estimate of up .1% and this brings the y/o/y rise to 2.2% up from 1.6% last month. That’s the biggest gain since March 2012. The core rate also ran above expectations with a .3% m/o/m rise vs the forecast of up .2%. The y/o/y core rate was up by 1.5% vs 1.2% in January. There is also a core/core number that takes out food, energy and trade which also saw a .3% m/o/m rise and 1.8% y/o/y gain, a 2 ½ yr high. This was driven by a further rise in prices for services less trade, transportation and warehousing. The BLS is attributing this core/core rise mainly to “traveler accommodation services, which rose 4.3%.” Higher energy prices drove over half the rise in goods prices where electric power was a key driver.
There is also inflation brewing in the pipeline as “prices for processed goods advanced by .4%…and prices for services climbed by .5%.” Unprocessed prices fell by .2% m/o/m but only after spiking by 3.8% in January and 8.4% in December.
Bottom line, while running above expectations, the market only cares about the CPI and PCE measures of consumer prices. The 5 yr inflation breakeven is down by 1 bp to 1.99%. The 10 yr inflation breakeven is also lower by 1 bp to 2.01%. With the weakness in the S&P futures, the 10 nominal 10 yr yield is backing off slightly from the 2.62% level seen last hour and as seen in the chart I included earlier, we can see the key technical level we are at.