The Producer-Price Inflation Rate Has Slowed More Than Analysts Expected

Investors are likely to see the Federal Reserve being more accommodative when it announces its next interest rate decision this month as a result of the significant slowdown in wholesale inflation in February.

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Trade Algo's survey of economists predicted a growth rate of 5.4% among producer prices in February, not the 4.6% reported. According to the PPI, prices dropped 0.1% on a monthly basis, below January's 0.3% increase and below economists' expectations for 0.3% growth.

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Almost all of the decline in PPI was due to a 36.1% fall in chicken egg prices, which drove down goods inflation.

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A lower revision was also made to January's figures on Wednesday. On a monthly basis, the PPI had previously increased by 0.7% and was 6% higher than a year ago.

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According to Sam Millette, a strategist at the Commonwealth Financial Network, February's price increase marked the lowest year-to-year gain since April 2021. Futures markets indicate a roughly 50/50 chance that the Fed will hike the federal funds rate by 25 basis points at their upcoming March meeting, according to the Fed's press release.

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In order to tame the highest inflation since the 1980s, the central bank has increased the interest rate over the past year. This narrative was also reinforced by Tuesday's consumer-level inflation data, though the rate of price increases did not decline as much as expected.

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At the Fed's policy-setting committee meeting on March 21-22, investors should expect the Fed will not accelerate interest-rate hikes following the PPI print. Following February's 25-basis-point rate hike, which had marked a step down after much bigger rate hikes last year, futures were pricing in a 75% chance of a 50-basis-point rate increase.

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Silicon Valley Bank's closure on Friday marked the biggest banking collapse since the 2008-09 financial crisis in terms of chaos in the financial sector. Due to the bank's failure, due to portfolio losses resulting from higher rates, the Fed has been widely expected to be more accommodating after the failure sparked fears over the health of U.S. banks.

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Trade Algo research shows that traders are near split on whether the Fed will even hike rates next week, with 45% odds of a rate hold, 55% of a 25 basis-point hike, and 0% chances of a higher hike.