Producer Prices Rise 0.7% in February, Lifting the Annual Rate to 3.4%

The Producer Price Index for final demand rose 0.7 percent in February, seasonally adjusted, after increases of 0.5 percent in January and 0.4 percent in December 2025. On an unadjusted basis, final demand prices were up 3.4 percent over the 12 months ended in February. The annual rate had sat between 2.8 and 3.0 percent for the four months before this one, so February is where producer inflation stopped drifting sideways.

Headline and Core Move Together

The core measure did not contradict the headline. The index for final demand less foods, energy, and trade services rose 0.5 percent in February, the tenth consecutive advance, and is up 3.5 percent over 12 months. That is the more informative figure: it strips out the three categories responsible for most of PPI's month-to-month noise, and it has been holding a narrow band — 3.4 percent in both December and January — while the headline moved around it.

So this is not simply an energy spike wearing a headline. Energy contributed heavily, but BLS describes the February increase in final demand services as broad-based, and core rose at a pace consistent with the headline rather than lagging it. When headline and core move in the same direction in the same month, the month is usually telling you something about demand rather than about oil.

Goods vs Services: Where the Increase Came From

Services did the heavier lifting in aggregate; goods moved further in percentage terms.

• Final demand services rose 0.5 percent, a third straight advance, and accounted for more than half of the February increase.
• Final demand goods rose 1.1 percent.

Within services the gain was broad rather than concentrated. Prices for final demand services less trade, transportation, and warehousing moved up 0.6 percent, nearly three-fourths of the services increase. Trade services margins — what wholesalers and retailers take — rose 0.4 percent, and transportation and warehousing services 0.5 percent. Traveler accommodation jumped 5.7 percent, about 20 percent of the services advance on its own. Against that, margins for apparel, footwear, and accessories retailing fell 4.5 percent.

Goods were the more volatile side, as they usually are:

• Final demand foods jumped 2.4 percent, forty percent of the goods advance.
• Final demand energy rose 2.3 percent.
• Goods less foods and energy rose 0.3 percent.

That last line is the one to sit with. Strip food and energy out of goods and almost nothing happened. Over 20 percent of the entire goods increase traces to a 48.9 percent jump in fresh and dry vegetables — a single perishable category doing a fifth of the work. Jewelry and jewelry products fell 4.0 percent.

Pipeline Pressure Is Building Upstream

Intermediate demand is where this release turns from a firm month into something worth watching. Increases were broad-based across all three commodity types:

• Processed goods rose 1.6 percent, and are up 4.0 percent over 12 months.
• Unprocessed goods rose 3.1 percent, but remain down 1.7 percent over 12 months.
• Services rose 0.8 percent.

Energy drove both goods categories. Processed energy goods jumped 5.5 percent — sixty percent of the processed-goods advance — with diesel fuel up 13.9 percent, itself nearly 30 percent of that rise. Unprocessed energy materials climbed 6.0 percent, also sixty percent of their category's move, with natural gas up 10.9 percent. Away from energy the picture is firm rather than alarming: processed materials less foods and energy rose 0.8 percent and processed foods and feeds 0.3 percent. Raw milk fell 9.1 percent and sugar and confectionery products 1.8 percent.

Hold onto the divergence between processed goods, up 4.0 percent over 12 months, and unprocessed goods, still down 1.7 percent. Raw input prices remain below where they were a year ago while processed input prices do not. Cost is accumulating as material moves down the chain rather than arriving at the front of it.

Stage of Processing: How Far the Cost Has Traveled

The production-flow cut says the same thing with more resolution. All four stages rose in February:

• Stage 4, closest to final demand: 1.0 percent, goods and services inputs each up 1.0 percent. Up 4.6 percent over 12 months.
• Stage 3: 0.7 percent, goods inputs up 1.2 percent against services inputs up 0.2 percent. Up 1.1 percent over 12 months.
• Stage 2: 1.8 percent, goods inputs up 3.1 percent. Up 2.3 percent over 12 months.
• Stage 1: 1.4 percent, goods inputs up 1.8 percent and services inputs up 1.0 percent.

Read the 12-month column and the picture is uneven. Stage 4 at 4.6 percent is running above headline final demand at 3.4 percent, while stage 3 sits at 1.1 percent and stage 2 at 2.3 percent. The cost pressure closest to the finished product is the most intense, and it is not being fed by a proportionate build further back. That argues February was driven by margins and energy near the end of the chain rather than by a broad upstream wave working its way forward — which is the more benign of the two readings, because end-of-chain pressure has less distance left to travel and less momentum behind it.

The 12-Month Trend

Set February against the preceding months and the shift is clear. The headline 12-month rate ran 2.8 percent in October, 3.0 percent in November and December, and 2.9 percent in January before reaching 3.4 percent in February. Core over the same window was steadier: 3.4 percent in December and January, 3.5 percent in February.

That gap is the interpretation. A headline rate that moves while core barely does is mostly reporting food and energy. February's acceleration is real and it is not trivial, but the core reading says the underlying trend moved considerably less than the top line did. Producer inflation is running above the pace consistent with the Federal Reserve's 2 percent target, and it is now running further above it than it was in the autumn — but the composition of the increase is narrower than the headline suggests.

What It Means for PCE

PPI feeds the PCE price index through specific channels: healthcare, financial services, and airfares. February is mixed across exactly those lines.

• Inpatient care rose.
• Securities brokerage, dealing, investment advice, and related services rose, and appeared as a named contributor in the stage 4, stage 3, stage 2, and stage 1 discussions alike — a genuinely broad financial-services increase.
• Airline passenger services declined.

So the PCE-relevant content of this report is firmer than target, but not by the margin the 3.4 percent headline implies. The headline is carrying vegetables and diesel; the services lines that actually flow into PCE moved less than that.

The next PPI release, covering March, publishes on Tuesday, April 14, 2026. The number to isolate is intermediate demand for unprocessed goods, currently down 1.7 percent over 12 months against processed goods up 4.0 percent. If unprocessed turns positive while processed holds, the upstream build that February's stage data does not yet show has begun, and pass-through to final demand becomes a question of timing rather than direction. If processed decelerates while unprocessed stays negative, February was an energy month and the annual rate drifts back toward the band it held through the autumn.