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U.S. producer prices cool sharply in February, rising 4.6% for the year

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(Kitco News) - Relief from higher consumer prices could be coming down the road as costs for producers appear to be cooling more than expected.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) fell 0.1% last month following January's increase of 0.3%. According to consensus forecasts, the data was weaker than expected, with economists looking for a 0.4% increase.

The report said that inflation in the last 12 months dropped to 4.6%, coming in much weaker than expected. According to consensus estimates, annual inflation was forecasted to rise 5.4%.

Core inflation, which strips out volatile food and energy costs, was unchanged last month, following January's rise of 0.5%. Economists were expecting to see a 0.4% increase. During the previous 12 months, core PPI rose 4.4%; economists expected a print of 5.2%.

The weaker-than-expected wholesale inflation data is helping to drive gold prices higher, with spot gold trading near session highs at $1,923.30 an ounce, up more than 1% on the day.

Economists pay close attention to producer prices as it is a leading indicator for consumer prices. Traditionally, companies pass on higher costs to their customers.

According to some economists, the weak inflation data will come as a relief for the Federal Reserve as it tries to walk a narrow path between cooling inflation and keeping the economy from falling into a recession or further deepening the current banking crisis.

Wednesday, the CME FedWatch Tool shows that markets are nearly split 50/50 over whether the Federal Reserve raises interest rates by 25 basis points or leaves them unchanged after next week's monetary policy meeting.

Expectations have dramatically shifted in the last few days. Last week markets saw a nearly 80% that the Federal Reserve would raise interest rates by 50 basis points at the next two meetings. Those forecasts have been completely removed from the board and now markets see the potential for a rate cut by late summer.

Market expectations started to shift after U.S. regulators took over Califorina-based Silicon Valley Bank and New York's Signature Banks. The U.S. government has calmed some fears of a significant banking crisis after they said that all depositors' money would be guaranteed. However, the biggest bank failures since the 2008 financial crisis have revealed systemic cracks in the global economy as the financial system tries to deal with central banks aggressively raising interest rates to combat rising inflation.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.