US Producer Price Index down 0.2% in Feb, in line with expections

A worker moves parts for bathroom fixtures from a metal plating bath into a rinse at the Watermark Designs manufacturing facility in the Brooklyn borough of New York.
Victor J. Blue | Bloomberg | Getty Images

U.S. producer prices fell in February on lower energy and food costs, but prices were unchanged from a year ago, suggesting the downward trend was near an end.

A separate report showed factory activity expanded in March for the first time since last summer, and measures of new orders and shipments also posted robust gains.

The Labor Department said on Tuesday its producer price index dropped 0.2 percent last month after edging up 0.1 percent in January. In the 12 months through February, the PPI was unchanged after falling 0.2 percent in January.

It was the first time since January 2015 that the year-on-year PPI did not decline. Economists polled by Reuters had forecast the PPI dipping 0.2 percent last month and gaining 0.1 percent from a year ago.

With the dollar losing some momentum after gaining 20 percent against the currencies of the United States' main trading partners between June 2014 and December 2015, imported deflation is starting to wane. That could curb further declines in producer prices.

But oil prices, which tumbled by as much as 4 percent on Monday on concerns that a six-week market recovery has gone beyond fundamentals, remain a wild card. So far this year, the dollar has gained about 0.9 percent on a trade-weighted basis.

Last month, energy prices fell 3.4 percent, with gasoline prices declining 15.1 percent — the biggest drop in a year. Energy prices fell 5.0 percent in January.

Wholesale food prices decreased 0.3 percent, pulled down by a 19 percent tumble in the cost of fresh and dry vegetables — the largest fall since April 2011.

Prices for services were unchanged in February after rising for three straight months.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.1 percent last month after advancing 0.2 percent in January. The so-called core PPI was up 0.9 percent in the 12 months through February. That was the largest gain since July 2015 and followed a 0.8 percent increase in January.

Manufacturing in New York finally expanded in March

The New York Federal Reserve's Empire State manufacturing index rose to 0.6 in March from minus 16.6 the previous month. It was the first positive reading since July. Any reading above zero indicates growth.

A gauge of new orders jumped to 9.6 from minus 11.6. And a measure of shipments jumped to 13.9 from minus 11.6.

The results suggest that manufacturing may finally be showing signs of life after getting hammered for months by weak overseas growth and a strong dollar, which has been cutting into exports and reducing overseas profits.

The Associated Press contributed to this report.