Inflation at the wholesale level came in hotter than expected in February, and the numbers arrived before the full economic impact of the Iran conflict had any chance to register in the data. The Labor Department reported Wednesday that its producer price index, which tracks inflation before it reaches consumers, climbed 0.7% from January and 3.4% compared to February 2025. That year-over-year figure represents the largest gain in a full year and exceeded what economists had forecast.
The report landed on the same day Federal Reserve policymakers gathered in Washington to decide on the nation’s benchmark interest rate, adding an uncomfortable piece of data to an already complicated policy environment.
Food prices drove a significant portion of the monthly increase
The monthly gain was fueled in part by a sharp rise in food prices, which jumped 2.4% from January to February. Within that category, vegetable prices surged 49% and fruit prices climbed 10%, two of the largest single-category moves in the report. Food prices remain lower compared to a year ago, but the monthly trajectory is drawing concern among economists who see it as part of a broader pattern of building pressure in the producer pipeline.
Excluding volatile food and energy prices, core wholesale inflation rose 0.5% from January, which was lower than the prior month’s 0.8% increase but more than twice what economists had anticipated. On a year-over-year basis, core wholesale prices rose 3.9%, the steepest jump since January 2025.
Economists see the data as a sign of trouble rather than a one time event
Wholesale inflation also came in unexpectedly high in January, a reading that some economists initially dismissed as a statistical anomaly. February’s numbers make that interpretation harder to sustain.
Stephen Stanley, chief US economist at Santander, called the February report a sign of trouble and noted that companies have largely been absorbing higher costs that arrived in the wake of tariffs implemented by the Trump administration. But he warned that the producer price index is signaling continued pipeline pressure rather than a single wave of cost adjustments that would resolve itself. The implication is that more consumer-facing price increases may be on the way as businesses reach the limit of how much they can absorb before passing costs along.
Carl B. Weinberg, chief economist at High Frequency Economics, described the increases as substantial additions to the political conversation around affordability. He also pointed directly to what is not yet in the data. Energy prices will spike further in the March report, he noted, as the effects of the Iran war and the blockade of the Strait of Hormuz work their way through the pipeline.
Oil and gasoline prices have already moved sharply higher
The February producer price report was compiled before the US and Israel launched attacks on Iran. Since the conflict began, oil prices have surged nearly 50%, and gasoline prices have followed. The national average price for a gallon of gasoline climbed to $3.84 overnight, a significant jump from levels well under $3 per gallon before the war started. Diesel prices, which are critical for transportation and logistics costs throughout the economy, are rising even faster than gasoline.
Those energy cost increases have not yet shown up in the February wholesale data, meaning the March producer price report is expected to reflect a considerably steeper picture.
Markets moved lower and the Fed holds rates steady
Stocks reversed course and turned negative at the opening bell on Wednesday after the producer price report was released alongside a resumption of the climb in oil prices. The S&P 500, the Dow Jones Industrial Average and the Nasdaq composite all moved into negative territory following the data release.
The Federal Reserve, which cut its benchmark interest rate three times last year when inflation appeared to be slowing, has since paused that easing cycle and was widely expected to hold rates steady again at Wednesday’s meeting. The central bank is navigating a difficult balance between inflation that remains above its 2% target and a job market that has shown signs of softening and may benefit from lower borrowing costs.
Recent data has complicated that calculus further. Consumer prices rose 2.4% in February compared to a year earlier, while the Fed’s preferred inflation measure, the personal consumption expenditures price index, rose 2.8% in January from a year prior. Core PCE prices increased 3.1% over the same period, the largest gain in nearly two years. Wednesday’s wholesale inflation data adds another layer of pressure to a picture that was already more uncertain than policymakers would prefer heading into the spring.
