Wholesale Changes: PPI Above Expectations After Months of Inflation Progress, Outlining Fed's Challenge

Today's February Producer Price Index (PPI) growth of 0.6% was well above expectations, reversing months of progress seen for wholesale prices. Core growth of 0.3% also exceeded forecasts, outlining the Fed's tough inflation fight. Treasury yields rose on the data.

5 min read
Photo by Adobe

Key Takeaways

  • U.S. February wholesale prices rise more than expected, while Retail Sales look light

  • Crude back above $80 per barrel on U.S. supply drop, war in Ukraine

  • Investors begin to brace for next week’s Fed meeting, with rate projections looming

(Thursday market open) With less than a week until the next Federal Reserve meeting, data early Thursday reinforced ideas that inflation remains hotter than the central bank might like. The February Producer Price Index (PPI) rose 0.6% while core PPI climbed 0.3%, both above expectations after a stronger-than-expected Consumer Price Index (CPI) report earlier this week.

Analysts had expected monthly headline PPI growth of 0.3% and core growth of 0.2%, according to Briefing.com. Core strips out volatile food and energy prices. Annual PPI growth of 1.6% was well above expectations for 1.1% and up from January’s 0.9%. Core annual PPI growth of 2% contrasted with the average forecast of 1.9%.

Treasury yields, which can be volatile after data, initially rose after PPI before pulling back slightly, while major U.S. stock indexes trimmed moderate premarket gains but stayed in the green. Recently, the benchmark 10-year Treasury note yield traded around 4.22%, the highest level since March 4.

“PPI came in a bit stronger than expected, but a closer look suggests that the disinflationary trend should continue,” said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. “Core PPI rose by 0.3% for the month, more than the 0.2% consensus expectations, but on a year-over-year basis it matched January’s 2% increase. Retail sales came in a bit soft as well, with the control group (which feeds directly into GDP) coming in flat for February. Treasury yields have whipsawed as the market digests the reports, but taken together it suggests that growth should continue to moderate and inflation should keep falling.”

In a bit of a reversal, services inflation was relatively tame even as goods inflation led the report. Higher services prices have been the main “sticky” inflation element over the last year. Food, energy, and transportation and warehousing all drove goods inflation. All this helped reverse some of the progress seen over the last year in wholesale price growth, though one month of data doesn’t necessarily change the trend. Many analysts say seasonal impacts tend to push prices up in January and February.

Typically, the PPI, which tracks wholesale prices, doesn’t influence stocks and Treasuries as much as CPI. The February CPI report showed stronger-than-expected monthly core growth.

Separately, U.S. Retail Sales rose 0.6% in February, slightly less than the Briefing.com consensus of 0.7%, and the government revised down January retail sales to –1.1% from the previous –0.8%. Excluding autos, February retail sales rose just 0.3%.

Today’s data won’t likely affect the Fed’s decision next week, with the market building in nearly 100% probabilities it will keep rate policy unchanged. But chances for a May rate cut dropped slightly to 10% immediately after PPI, according to the CME FedWatch tool, while the June probability remained near 65%. Rate cut odds for July remain strong at 82%.

U.S. crude remained above $80 early Thursday, knocking on the door of its 2024 intraday high established February 29. Persistently high oil prices could make the Fed’s inflation fight more difficult.

Futures based on the S&P 500® index (SPX) were up 0.25% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) climbed 0.4%, and futures based on the Nasdaq-100® (NDX) rose 0.2%.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) rose two basis points to 4.22%.
  • The U.S. Dollar Index ($DXY) is steady at 102.83, near recent two-month lows.
  • The CBOE Volatility Index® (VIX) fell to 13.48, the lowest since March 4.
  • WTI Crude Oil (/CL) rose 0.9% to $80.44 per barrel.
  • Bitcoin (/BTC) is relatively flat near $73,500.

Just in

Weekly U.S. Initial Jobless Claims slipped to 209,000 from a downward revised 210,000 the previous week. Consensus was for 218,000, Briefing.com said. Continuing claims of 1.811 million were up from a sharp downward revision to last week’s data, now at 1.794 million from the original projection above 1.9 million. This dramatic revision resets the bar, to some extent, because the claims above 1.9 million reported last week were the highest in several months and seemed to point toward workers having more trouble finding jobs.

The new figure, while just for one week, points the opposite direction. More jobs are good, but from a rate standpoint today’s data keeps potential wage-driven inflation fears on the front burner.

Returning to Retail Sales, today’s slight miss and the revision lower to January’s already light number could weigh on expectations for Q1 gross domestic product (GDP). The most recent Atlanta Fed GDPNow estimate was 2.5%, and a new one is due today.

What to watch

Preliminary University of Michigan Consumer Sentiment for March is due soon after tomorrow’s opening bell. Analysts expect a headline of 77.3, hardly changed from the final February reading of 76.9.

Beyond the headline, watch expectations, which are more forward-looking. Expectations fell to 75.2 in February from 77.1 in January. Also, the report’s inflation component tends to get a close look. Year-ahead inflation expectations were steady in February at 3%, with five-year inflation expectations at 2.9%. Fed Chair Jerome Powell has frequently mentioned the importance of keeping inflation expectations “anchored” to avoid self-inflicted price gains.

FOMC on horizon: It’s still nearly a week until the Federal Open Market Committee (FOMC) rate decision and a fresh batch of economic and rate projections, but anticipation builds after a mixed batch of recent economic numbers.

Analysts see no chance of a rate cut next Wednesday. Instead, focus will zero in on the Fed’s “dot plot” of rate and economic projections, the first projections it will issue since mid-December. Back then, policy makers anticipated three rate cuts in 2024, but inflation hasn’t come down as quickly as the Fed might have hoped.

Notable things to watch coming out of the meeting include the following, according to Cooper Howard, a director of fixed income trading at the Schwab Center for Financial Research.

And, of course, there’s Fed Chairman Jerome Powell’s post-meeting press conference. “That’s always the wild card,” Howard noted. It will likely be Powell’s first chance to publicly share his thoughts on the recent CPI and PPI reports as well as the February Nonfarm Payrolls data.

Stocks in spotlight

Beyond data, evidence grew this week that investors are increasingly rotating into sectors beyond tech and communication services. The percentage of S&P 500 members above their 200-day simple moving average hit 82% on Monday, the highest level since 2021. Tech shares came under pressure again yesterday as Nvidia (NVDA) slipped more than 1%.

“Regarding technology, we’ve had a couple bearish technical patterns show up on the charts over the past week in the PHLX Semiconductor Index (SOX) and the Nasdaq-100 (NDX), and we may need to correct some more to shake off some of the excessive optimism,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Adobe (ADBE) is expected to report earnings this afternoon. The software maker’s last quarterly report disappointed investors, though analysts remained positive about the stock, Barron’s pointed out at the time. Disappointment centered around the company’s revenue guidance, which investors had hoped would be stronger thanks to AI. Adobe projected revenue for the quarter that ended in February at between $5.1 billion and $5.15 billion, just below Wall Street’s $5.16 billion estimate going into the December earnings report.

Digital media remains key for Adobe as its biggest revenue generator, and the company predicted quarterly revenue there of $3.77 billion to $3.8 billion. A better-than-expected number might reassure investors that the company can regain the 2023 stock market traction it’s lost so far this year.  

Home cooking: Lennar (LEN), one of the country’s largest homebuilders, reported fiscal Q1 earnings late Wednesday but holds its earnings call at 11 a.m. ET today, meaning more color might be ahead. Lennar beat Wall Street’s consensus views on earnings per share. However, revenue of $7.3 billion came in slightly below the average analyst estimate, the average home sales price dropped 8% year over year, and gross margin on home sales slipped sequentially. So did shares of Lennar in premarket trading, by nearly 2%.

Like other home builders, Lennar has had to use incentives to drive demand, and that didn’t change in its Q1. The company used “dynamic pricing to enable consistent volume in a fluctuating interest rate environment,” Lennar said in its press release. “Although affordability continued to be tested by interest rate movements, purchasers remained responsive to increased sales incentives.” New orders rose 28% by volume in Q1 and deliveries rose 23%. In its outlook, Lennar forecast 80,000 home deliveries for the full year and improved Q2 margin.

Stocks on the move early Thursday include:

  • Dick’s Sporting Goods (DKS) climbed more than 4% in premarket trading after reporting earnings per share (EPS) and revenues that beat analysts’ estimates. The company also posted fiscal 2025 guidance that was in line with estimates and raised its dividend 10%.
  • Dollar General (DG) shares rose nearly 6% ahead of the open after beating analyst’ EPS estimates and reporting revenue in line with expectations. Guidance for fiscal 2025 was also as analysts had expected, though its Q1 guidance came up short of Wall Street’s thinking. The company expects same-store sales growth of 2% to 2.7%. In its press release, Dollar General cited “customer traffic growth and market share gains” during the most recent quarter. That contrasts with recent struggles from competitor Dollar Tree (DLTR), which fell short of Wall Street’s earnings expectations earlier this week.

Wednesday in review:

U.S. equities ended mixed Wednesday as investors continued to take profits in technology shares while energy and other sectors picked up the slack. Wednesday’s trading extended a recent pattern marked by weakness in technology shares as investors “rotated” into other sectors. Energy shares rose Wednesday behind gains in crude oil prices, and the materials sector ended at a record high.

Eye on the Fed

Early today, futures trading pegged chances at 99% of the FOMC leaving rates unchanged at the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in around a 10% chance the funds rate will be lower than now after the Fed’s May meeting. Chances rise to 65% of at least one cut by June and 82% by July.

CHART OF THE DAY: ALL ElSE BEING EQUAL: The SPX Equal Weight index (SPXEW-candlestick) has spent much of the last six months trailing the S&P 500 index (SPX-purple line), as this one-year chart shows. Still, the gap has narrowed recently amid rotation into sectors other than mega-cap tech and communication services. Generally, this can be a healthy sign for the market, but might mean slower growth for the SPX. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Mystery of the falling VIX: A steep drop in equity volatility over the past two years is gaining attention, as the VIX fell from an average of 26 in 2022 to just 17 in 2023. Year to date, the VIX has averaged around 13.5. The nine-point year-over-year decline in 2023 ranked as the third largest annual drop in equity volatility on record, trailing only 2010 (post-global financial crisis) and 2021 (post-COVID 19), the CBOE said in a report this week. Many suggest this compression reflects the rise of yield enhancement exchange-traded funds (ETFs) and mutual funds that sell covered calls or cash secured puts for income. These funds have grown an astonishing six-fold since 2019, from $20 billion to $120 billion, the CBOE said. But that doesn’t explain the elevated skew toward calls over puts consistently seen in these trading markets, at both the index and single stock levels. The explosive growth of zero-days to-expiration (0DTE) options could be another reason, because they tend to weaken index movement and volatility.

Red VIX in the morning, investors take warning: VIX isn’t alone, either. Implied volatilities have fallen broadly over the past year across equity, credit, FX, and commodity markets, with every asset class trading below their 10-year average, the CBOE said. This suggests something at a macro level. Perhaps it’s falling recession fears as investors embrace the “soft landing” narrative. Or the positive flow of economic news. Whatever it is, investors feel emboldened, staying long and forgoing traditional hedges. Will that continue and are they properly positioned for negative economic news, should it arise? Only time will tell, but sometimes it makes sense to go against the prevailing theme and protect some of that downside risk. And with implied volatility trading at these levels, it may be prudent to zig when others are zagging.


March 15: February Capacity Utilization and Industrial Production, preliminary March University of Michigan Consumer Sentiment.

March 18: No major earnings or data expected.

March 19: February Housing Starts and Building Permits.

March 20: FOMC rate decision and projections and expected earnings from Micron (MU) and General Mills (GIS).

March 21: February Existing Home Sales, February Leading Economic Indicators, and expected earnings from FedEx (FDX), Nike (NKE), lululemon (LULU), and Darden Restaurants (DRI).


Key Takeaways

  • U.S. February wholesale prices rise more than expected, while Retail Sales look light

  • Crude back above $80 per barrel on U.S. supply drop, war in Ukraine

  • Investors begin to brace for next week’s Fed meeting, with rate projections looming

Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. © 2024 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top