Bulletin
Investor Alert

London Markets Open in:

Economic Report Archives | Email alerts

March 12, 2020, 9:56 a.m. EDT

U.S. wholesale inflation sinks in February on lower oil prices as coronavirus hinders travel

Producer price index shows inflation low and likely to go lower

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Dow Jones Industrial Average (DJIA)
  • X
    S&P 500 Index (SPX)
  • X
    U.S. 10 Year Treasury Note (TMUBMUSD10Y)

or Cancel Already have a watchlist? Log In

By Jeffry Bartash, MarketWatch


Bloomberg News/Landov
Americans are stocking up on certain goods such as hand sanitizers and toilet paper as worries over the coronavirus grow.

The numbers: The wholesale cost of U.S. goods and services posted the biggest decline in February in five years, reflecting a large drop in oil prices likely tied to disruptions in global travel due to the coronavirus.

The producer price index sank 0.6% last month, the government said Thursday . Economists polled by MarketWatch had predicted a smaller 0.1% decline.

Wholesale inflation has risen just 1.3% in the past 12 months and inflation is likely to taper off even more if the coronavirus brings the U.S. economy to a standstill.

Read: Inflation creeps higher, but it’s ‘all water under a bridge’ as coronavirus spreads

What happened: The cost of goods dropped almost 1% last month, with three-fifths of the decline traced to lower energy prices. The cost of gasoline fell 6.5% and jet fuel 16.5%, among other things.

The COVID-19 outbreak in China in January caused a big decline in travel to and from the world’s second largest economy. The resulting drop in demand for oil has since spawned a price war between Russia and Saudi Arabia as they try to make up for lost revenue by increasing supply.

Oil prices are likely to decline even further in the months ahead, tugging inflation even lower.

Wholesale food prices also fell sharply last month, down 1.6%. That’s the biggest drop since 2015.

Another measure of wholesale costs that strips out food, energy and trade margins, known as core PPI, slid 0.1% last month. The 12-month core rate edged down to 1.4% from 1.5%.

The cost of raw materials and partly finished goods both declined last month, adding to the evidence that inflation was largely contained before the coronavirus outbreak.

Read: Coronavirus and the economy: Businesses face shortages, confidence plunges

Big picture: Inflation is low by almost any measure and widely expected to soften even more in the months ahead with oil prices tumbling. The coronavirus epidemic is also reducing demand for many goods and services, forcing airlines and other companies to cut prices in an effort to drum up sales.

What they are saying? “Looking ahead, the disinflationary impact from the virus and the crash in oil prices will exert even more downward pressure on prices,” economist Lydia Boussour of Oxford Economics wrote in a note to clients.

Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.17% and S&P 500 /zigman2/quotes/210599714/realtime SPX +0.06% tumbled again in Thursday trades, with the Dow falling as much as 2,000 points. The Dow has lost some 8,000 points in the past few weeks as nations around the world grapple with the coronavirus.

The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% slipped to 0.66%. Yields are sitting at record lows as investors seek the perceived safety of government bonds.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,433.48
+46.50 +0.17%
Volume: 324.93M
Aug. 7, 2020 5:10p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,351.28
+2.12 +0.06%
Volume: 2.28B
Aug. 7, 2020 5:10p
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.57
0.00 0.00%
Volume: 0.00
Aug. 9, 2020 4:59p
loading...

Jeffry Bartash is a reporter for MarketWatch in Washington.

This Story has 0 Comments
Be the first to comment
More News In
Economy & Politics

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.