By Megan Leonhardt
Consumers are quick to complain about higher prices in the grocery aisle, at the coffee shop, and especially at the pump, where gasoline is heading toward a national average of $4 a gallon. Businesses, too, are feeling the pinch as labor and input costs and insurance and energy bills rise.
The pressure on business is now apparent in inflation data and has begun to worry the Federal Reserve, in part because higher operating costs haven't yet fully hit consumers. The producer price index for total final demand rose 0.7% in February, compared with January's 0.5% monthly advance, the Bureau of Labor Statistics reported on Wednesday morning. That's the third straight month of strong PPI readings -- a trend that can't be ignored.
Higher wholesale prices are one reason Fed Chair Jerome Powell signaled on Wednesday that the central bank isn't prepared to "look through" the recent surge in oil prices stemming from the war in Iran. This means the Fed could delay any interest-rate cuts until later in the year, if it determines that rate cuts are merited at all.
"It, of course, is kind of standard learning that you look through energy shocks, but that's always been dependent on inflation expectations remaining well anchored," Powell said.
That calculus is also dependent on the "broader context," he added, citing the fact that inflation has run above the Fed's 2% annual target for the past five years.
Firmer wholesale inflation is part of that broader context, and higher tariffs are only a part of the problem. Intermediate material and services inputs have seen substantial cost gains in recent months due to rising prices for diesel fuel, electronic components, industrial chemicals, and even meat. And the pressure doesn't appear to be letting up. The February PPI report doesn't reflect the recent spike in oil prices stemming from the war in the Middle East.
"The inflation pipeline is becoming problematic," writes Stephen Stanley, chief U.S. economist at Santander. "When the PPI surged in January, it could be downplayed as a one-off, turn-of-the-year blip. The further surge in wholesale prices in February is a sign of trouble."
Digging into the data, Stanley notes that U.S. trucking freight rates, for example, rose by 0.7% in January and 1.2% in February. Trucking is the backbone of the U.S. supply chain, responsible for hauling more than 70% of domestic goods, or more than 10 billion tons annually, according to the American Trucking Associations.
The PPI measures are also consistent with the elevated price readings in the Institute for Supply Management's recent Purchasing Managers' Index reports.
The buildout of artificial-intelligence technology is playing a role in price growth. Demand for DRAM semiconductor chips, used for memory storage, is now so high that it's causing shortages and price spikes -- and that is affecting producer costs. Wholesale electronics component prices jumped 10.4% in February, leaving them 17.8% higher year over year, writes Grace Zwemmer, U.S. economist at Oxford Economics.
"With demand for AI unlikely to cease, we expect these areas of producer prices will stay higher in the near term," Zwemmer writes, noting that she expects the Fed's preferred inflation gauge to reach 3.5% in the second quarter.
Energy prices are also adding to the pressure, as was the case even before the onset of the recent oil-price surge. Diesel fuel increased by 13.9% month over month in February, boosting the PPI's index for processed goods for intermediate demand by nearly 30%. The rise in diesel prices has ripple effects as it feeds into food prices through the higher cost of operating farm equipment, and in elevated fuel costs for the commercial shipping and trucking sector.
"All of this suggests that the Fed's inflation worries extend beyond weathering a fleeting wave of one-off price hikes associated with tariffs and, more recently, an energy price spike," Stanley says. "Instead, businesses are broadly seeing their costs move higher, and while not everyone will have the pricing power to pass those along, it is safe to assume that many firms will." That suggests inflation will remain stubbornly high.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 12:56 ET (16:56 GMT)
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