The PPI is one of the key indicators of inflation. Therefore, its confident growth is clearly viewed as a hawkish signal, especially in light of the accelerating core PCE and the "stagnation" of the CPI. A clear picture has emerged showing that inflation is rising in the US.

According to the published data, the overall PPI accelerated to 0.7% month-on-month in February (the highest level since last July). This indicator has increased for the fourth consecutive month, with a forecast of +0.3%. Year-on-year, the overall PPI surged to 3.4%, reaching a yearly high (the highest level since March of last year), after declining to 2.9% in January. This component of the report also came out in the green zone, as most analysts had predicted stagnation.

The core PPI hit a three-year high, accelerating to 3.9% year-on-year, the highest level since March 2023, with a forecast of 3.7%. The indicator has shown upward momentum for the third consecutive month. All components of the release exceeded analysts' expectations.

What does this report indicate? Primarily, it confirms that inflation is accelerating at the producer level, almost synchronously across all sectors of the economy. This means that we will soon "see" PPI reflected in CPI and PCE.

The first point of interest is the dominance of the goods sector. For the first time in a long while, price growth for goods has significantly outpaced that of the services sector. This disparity is largely due to a spike in volatile components (primarily energy). Nearly 30% of the overall PPI increase was caused by a sharp rise in gasoline and diesel prices. This acts as a sort of "tax on logistics," which will inevitably be reflected in retail prices within two to three months. Moreover, we are discussing the February reporting period, which does not cover the "Middle Eastern storm" and the subsequent energy crisis.

However, inflation in services should not be underestimated. Despite more moderate growth rates, services remain a key source of price pressure, helping maintain a more stable inflation backdrop. For instance, transportation costs have risen sharply, particularly due to higher freight costs. There are several reasons for this: rising prices for bunker fuel, escalating tension in the Black Sea and the Persian Gulf, and a shortage of tonnage, etc. Shipping rates have increased significantly due to heightened risks and increased insurance costs. It is obvious that the cumulative effect of these factors will only intensify this month.

It is also important to note the increase in the leading indicator—Intermediate Demand (intermediate goods and raw materials). Intermediate demand for processed goods rose by 1.5% in February. It is logical to assume that if intermediate stages are increasing in price at such "athletic" rates, then producers of final products will soon be forced to raise prices to maintain margins. This means that a significant portion of the PPI increase in the coming months will be transferred to consumer inflation.

In summary, the PPI release should be viewed in the context of the upcoming March FOMC meeting, the results of which we will learn at the end of the American trading session. It can be assumed that after these figures, the forecast for PCE (the most important inflation indicator for the central bank) will be revised upwards, as many components of the PPI are directly included in the calculation of the personal consumption expenditures index.

All of this suggests that the February PPI report is yet another "macroeconomic trump card" for the American currency, as it lays the groundwork for a stern interpretation of inflation risks. This provides another argument for maintaining the Fed's wait-and-see position, not only during the spring meetings but also into the summer—at least until June.

According to data from the CME FedWatch tool, the market is almost 100% certain that the Fed's interest rate will remain unchanged until the end of spring. Meanwhile, the likelihood of a monetary policy easing decision at the June meeting has dropped to 15% after the release. Moreover, markets are now even theoretically considering the possibility of an interest rate hike in June. Even though the probability of this scenario is only 1%, the fact itself is important—previously, traders did not even entertain such a possibility.

Nevertheless, despite such an "unequivocally hawkish" fundamental signal, the EUR/USD pair reacted rather weakly to the release. Sellers tested the 14 level, marking a point at 1.1490, but then returned to previous positions.

Traders are hesitant to open large positions until the results of the March Fed meeting are announced. The risks of a "dovish pause" are low, but they still exist, especially against the backdrop of inflated expectations. For example, many analysts suggest that the Fed may completely remove the only planned rate decrease for 2026 from the dot plot. If, contrary to expectations, the Fed shows caution and does not confirm market hawkishness (i.e., keeps the rate forecasts unchanged), the dollar will come under significant pressure. Additionally, we should not forget the disappointing February Non-Farm Payrolls, which reflected a decrease of 90,000 jobs and an increase in unemployment to 4.4%.

In such an environment of uncertainty, traders are reluctant to open large positions, neither for nor against the dollar. This is very reasonable; given the prevailing circumstances, it makes sense to maintain a wait-and-see position on the EUR/USD pair.