Inflation, as measured by the producer price index, declined from 3.5% to 3.2% for the year ending in February, the Bureau of Labor Statistics reported Thursday morning.
The decline adds to signs that price pressures are abating, a development that raises the prospect that the Federal Reserve will ease monetary policy sooner. It also suggests inflation may not present a major obstacle to President Donald Trump’s agenda in the months ahead.
On a month-to-month basis, the producer price index was flat.
“Net, net, there was no inflation at the factory level in February, but that could change when import tariffs go up and lead to an increase in the cost of producer price inputs for other products being manufactured here in this country,” said Chris Rupkey, chief economist at FWDBONDS.
The report comes a day after the more closely watched consumer price index dropped from 3% to 2.8% for the year ending in February.
Trump has been grappling with rising fears of a recession as he launches a multifront trade war. Stocks have tumbled in recent days amid other warning signs of economic malaise.
Officials at the Fed are watching inflation numbers closely to determine whether to lower interest rates further to spur more economic activity or to forgo further rate cuts to try to tamp down inflation. The Fed meets next week to decide what to do with interest rates.
The Fed cut rates by a whole percentage point last year. As inflation proved difficult to subdue, the central bank opted to hold interest rates steady at its January meeting.
Bond market prices Thursday morning suggested that investors saw higher odds of another rate cut from the Fed by June.
The Fed’s goal is 2% annual inflation.
TRUMP’S ‘LITTLE DISTURBANCE’ COULD TURN INTO A RECESSION, ECONOMISTS WARN
Trump has plowed ahead with tariff plans recently, which has caused economic uncertainty to rise and the stock market to post major losses. There are also indications of a slowdown in economic growth, and economists have said the odds of a recession are rising.
