By Lucia Mutikani

WASHINGTON, (Reuters) – U.S. producer price rose solidly in February, as gasoline prices soared. Further gains will be made following Russia’s invasion of Ukraine. This has caused other commodities to become more costly.

On Tuesday, the Labor Department reported that inflation will remain high despite the fact that prices at the factory gate have increased moderately in recent months.

On Wednesday, the Federal Reserve will raise interest rates for the first time in three years. Inflation is well above 2 percent target by the U.S. central banks. Analysts predict seven rate rises in this year’s forecast.

Will Compernolle is a senior economist with FHN Financial, New York. “We anticipate March PPI will show bigger increases as commodity prices rise and global trade disruptions amplify,” he said. Firms will need to confront disruptions from Russia’s invasion, and lockdowns in China’s top regions to reduce consumer price increases.  

Following an increase of 1.2% in January, 0.8% was recorded for the producer price index. The largest increase since December 2009 was 2.4% in goods prices, following an increase of 1.5% for January. The wholesale gasoline price jump was 14.8%

Nearly 40% of the rise in prices for goods was caused by this increase. In January, gasoline prices rose by 3.3%. Last month, food prices rose 1.9%

After an increase of 1.0% in January, services remained unchanged

The PPI increased 10% in the twelve months to February after an identical gain in January. The PPI increased in February according to economists’ expectations.

These data do not reflect the spike in oil prices and other commodities following Russia’s invasion Ukraine on February 24th. According to economists, there could be seven rate increases by the U.S. central banks this year.

OIL PRICE RETREAT

Oil prices rose more than 30% to $139 per barrel. The global benchmark reached a high of $139/barrel for the first time in 14 years. Prices then dropped below $100/barrel on Tuesday. The pullback is not enough to stop inflation from rising as the resurgence of COVID-19 infected in China (a key source of raw material for U.S. factory) puts greater pressure on supply chains.

Before the Russia-Ukraine conflict, inflation was already a serious problem. Strong demand was created by a shift in consumer spending from services to goods during the COVID-19 outbreak. The government also provided trillions in aid. But this led to a shortage of capacity.

According to the government, there was an increase in consumer prices last week. Inflation rates saw their largest rise in 40 years.

Economists have had to reduce their estimates of economic growth for the year due to high inflation. This was mainly because more gasoline is expensive. As households have saved a lot during the pandemic, there has not been a recession.

Producer prices rose 0.2% in February, excluding volatile components such as energy, food and trade services. Core PPI went up 0.8% in January.

Portfolio management fees declined 4.2% last month, which held the costs of services down. The prices for hotel rooms and footwear as well as accessories, apparel, jewelry and footwear retailing also fell. This was offset by a 1.9% hike in transport and warehousing costs.

The core PPI advanced 6.6% over the past 12 months, compared to 6.8% in January.