U.S. producer prices unexpectedly stagnated in February, while core inflation posted a rare contraction, reinforcing hopes that cost pressures may be easing despite lingering concerns over trade tariffs.

The Producer Price Index (PPI) remained flat on a monthly basis in February, a sharp deceleration from January's upwardly revised 0.6% gain and below expectations of a 0.3% increase.

Core PPI, which excludes food and energy, fell 0.1% in February, marking its first monthly decline since July 2024. This came after January's figure was revised higher to a 0.5% gain.

On a year-over-year basis, headline producer inflation eased to 3.2%, down from January's upwardly revised 3.7%, while core PPI slowed to 3.4%, from a revised 3.8% in the previous month.

The weaker-than-expected producer inflation report follows Friday's consumer price index data, which also came in softer than anticipated, strengthening the case for Federal Reserve rate cuts later this year.

Price Drivers: Food Jumps, Services Fall

The muted headline figure masked significant divergences across categories. Food prices surged 1.7%, largely driven by an extraordinary 53.6% spike in egg prices.

Other contributors to the increase included pork, fresh and dry vegetables, electric power, tobacco products, and carbon steel scrap.

Yet, gasoline prices fell 4.7%, exerting downward pressure on the overall index.

Meanwhile, the index for final demand services declined 0.2%, the steepest drop since July 2024, suggesting cooling inflationary pressures in service-related sectors.

Market Reactions

U.S. dollar: The dollar strengthened despite the softer PPI report, with the U.S. dollar index, tracked by the Invesco DB USD Index Bullish Fund ETF , rising 0.4%.

Treasury yields: The 10-year U.S. Treasury yield increased 2 basis points to 4.33% as markets reassessed inflation risks.

Stock market: Selling pressure on equities resumed after a brief rebound on Wednesday. Futures on major U.S. indices recorded losses in the premarket trading, with S&P 500 futures down 0.2% at 8:39 a.m. ET.

On Wednesday, the SPDR S&P 500 ETF Trust ( SPY ) closed at $558.87, up 0.5% but still hovering near its lowest levels in seven months and about 3% below its 200-day moving average.

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