The inflation report nobody wanted just landed at the worst possible time.

What the Numbers Show

The Bureau of Labor Statistics reported that the Producer Price Index for final demand rose 0.7% in February — well above the 0.3% consensus forecast and the highest monthly reading in months. Year-over-year, headline PPI hit 3.4%, its highest level since February 2025.

Core PPI, which strips out food and energy, rose 0.5% on the month and 3.9% annually — both above expectations. Goods prices jumped 1.1%, led by food up 2.4% and energy up 2.3%. Fresh vegetables alone surged 48.9%. Services costs climbed 0.5%, with portfolio management fees up 1% and securities brokerage services up 4.2%.

The PPI measures what producers charge for goods before they reach consumers — it's considered a leading indicator for where consumer prices are headed.

Why the Timing Matters

The Fed is holding its March 17-18 meeting today. Rates are almost certain to stay at 3.5%-3.75%, but the question markets were watching was: how hawkish does the tone get?

This report made that question harder. Futures traders responded immediately, pushing June rate cut odds down to 18.4% from around 45% just weeks ago. A December cut is now the base case, with only 60% confidence. Some analysts at Carson Group and EY-Parthenon say there may be no cuts at all this year.

Treasury yields rose after the release, equity futures softened, and Bitcoin dipped below $73,000.

The Bigger Problem

None of this data yet reflects the Iran war. Oil prices have surged roughly 30% since the conflict started — and those costs haven't fully worked their way into producer prices or consumer prices yet. March's PPI, due April 14, could be worse.

"An already large headache for the Federal Reserve is going to turn into an even larger one," Carson Group's Sonu Varghese told CBS News.

Powell speaks at 2:30 p.m. ET. The market will be listening very carefully.