NEW YORK (CNN/Money) - U.S. wholesale prices rose slightly in February, the government said Thursday, coming in below Wall Street forecasts.
Though the headline numbers seemed likely to soothe market fears that inflation is on the rise, it also offered worrisome evidence that firms are still dealing with surging costs in the production pipeline.
The Labor Department said its producer price index (PPI), a measure of wholesale prices, rose 0.1 percent after rising 0.6 percent in January. The so-called core PPI, which excludes often volatile food and energy prices, rose 0.1 percent after rising 0.3 percent in January.
Economists, on average, expected PPI to rise 0.4 percent and core PPI to rise 0.1 percent, according to Briefing.com.
"The cost pressures on businesses slowed in February, which is a good thing, given that the ability to pass the higher expenses through to consumers remains limited," said Joel Naroff, president of Naroff Economic Advisors. "But a careful reading of the details paints a troublesome picture."
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The report had little impact on U.S. stock prices, which rose in mid-afternoon trading, driven in part by stronger-than-expected numbers in the Institute for Supply Management's monthly survey of manufacturing purchasing managers. Treasury bond prices fell, while interest rates, which move in the opposite direction of prices, rose.
Despite steady economic growth since the end of 2001, when the latest recession ended, key measures of core consumer inflation have stayed low, enabling the Federal Reserve to keep interest rates low.
In fact, for a time, some policy-makers worried about the possibility of deflation, a dangerous condition of falling prices that saps corporate profits and economic growth.
But recent gains in the consumer price index (CPI) and January's PPI report, along with a general decline in the value of the dollar and recent gains in import prices, would seem to indicate that deflation risks have nearly disappeared.
February's PPI report, at least on the surface, would seem to indicate that inflation isn't exactly running away yet.
Energy prices rose just 0.2 percent after a 4.7 percent gain in January, weighed down by a 7.7-percent decline in home heating oil prices. Gasoline prices rose 2 percent following a 14.1 percent gain in January. Food prices rose 0.2 percent after falling 1.4 percent in January.
Economists typically ignore food and energy prices because they tend to be volatile and can obscure underlying trends in inflation.
Core PPI was kept in check by a 1.9-percent drop in SUV and light-truck prices, following a 1.1-percent rise in January.
Beyond these figures, however, economists were troubled by signs of inflation in the production pipeline. Intermediate goods such as lumber and yarn rose 0.9 percent, on top of a 0.8-percent gain the previous month.
And prices for crude goods such as timber and cotton jumped 2.5 percent, following a 2.8-percent gain in January.
The numbers echo the results of the latest ISM survey, which found that prices paid by manufacturers skyrocketed in March.
"Almost all the intermediate level goods are rising, and rising sharply. Commodity prices are on the rise, there is no doubt about that. Finally, at the crude level, just about everything is increasing," Naroff said. "This is not that tame a report."
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