Muted inflation hurts producers

March 13, 2015 08:52 AM

U.S. producer prices unexpectedly fell in February on weak trade margins, pointing to muted inflation pressures that could argue against an

anticipated June interest rate hike from the Federal Reserve.

The Labor Department said on Friday its producer price index for final demand fell 0.5% after dropping 0.8% in January. It was the fourth straight monthly decline in the PPI.

In the 12 months through February, producer prices fell 0.6%, the first drop since the series was revamped in 2009, after being unchanged in January. Economists polled by Reuters had forecast the PPI rising 0.3% last month and remaining unchanged from a year ago.

The decline in producer inflation came despite a stabilization in energy prices, which had weighed on price pressures in recent months.

The dollar's strength against the currencies of the main U.S. trading partners is helping to keep a lid on inflation.

The low-inflation environment could prompt the Fed to hold off on raising interest rates until much later this year, despite a tightening labor market.

The volatile trade services component, which mostly reflects profit margins, fell a record 1.5% in February, after rising 0.5% in January. It was pulled down by a 13.4% drop in margins at gasoline service stations.

A key measure of underlying producer price pressures that excludes food, energy and trade services was unchanged after a record 0.3% drop in January.

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