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US producer inflation, labor market stable ahead of tariff turbulence
FILE PHOTO: Inflation hits consumer spending in Pennsylvania · Reuters

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. producer prices were unchanged in February for the first time in seven months, while fewer Americans filed claims for unemployment benefits last week, pointing to a stable economy that should allow the Federal Reserve to keep interest rates steady next Wednesday.

But the calm painted by the reports from the Labor Department on Thursday could be upended by radical government spending cuts, which have pushed thousands of federal employees and contractors out of work, and an escalating trade war stemming from broad import tariffs.

The aggressive policies pursued by President Donald Trump's administration have sent business and consumer confidence plummeting, and raised the chances of a recession. U.S. airlines have cut their earnings estimates noting that corporations and consumers were scaling back spending because of mounting economic uncertainty.

"No factory inflation and no worrisome job layoffs either, so there is nothing to slow the economy's advance for now," said Christopher Rupkey, chief economist at FWDBONDS.

"Nevertheless, the radical, buzz-saw cuts in spending and personnel down in Washington could eventually spread to the rest of the private economy in the months to come and it has already created enough uncertainty for company CEOs to potentially halt the economy's forward progress starting in the second quarter."

The unchanged reading in the producer price index for final demand last month, the first since July, followed an upwardly revised 0.6% increase in January, the Labor Department's Bureau of Labor Statistics said.

Economists polled by Reuters had forecast the PPI climbing 0.3% after a previously reported 0.4% gain in January. In the 12 months through February, the PPI advanced 3.2% after rising 3.7% in January.

But as in the consumer price index data released on Wednesday, there were unfavorable details in the PPI components that go into the calculation of the Personal Consumption Expenditures (PCE) price indexes, tracked by the U.S. central bank for its 2% inflation target.

Goods prices rose 0.3%, with a 53.6% surge in wholesale egg prices accounting for two-thirds of the increase. Goods prices rose 0.6% in January. A raging bird flu outbreak is driving egg prices higher, boosting the cost of food. Wholesale food prices shot up 1.7% after increasing 1.0% in January.

Energy prices fell 1.2%. Excluding the volatile food and energy components, goods prices jumped 0.4%, the largest rise in two years. The so-called core goods prices gained 0.2% in January. Economists said it was likely that companies were raising prices ahead of tariffs.