January wholesale prices rise more than expected, another sign of persistent inflation
The latest report from the U.S. Department of Labor indicates that wholesale prices rose more than anticipated in January, adding complexity to the inflation scenario. The producer price index (PPI), a gauge of prices received by producers of domestic goods and services, increased by 0.3% for the month, marking the most significant movement since August. Economists surveyed had projected a more modest increase of just 0.1%. This follows a 0.2% decline in December.
Excluding volatile food and energy prices, core PPI surged by 0.5%, surpassing expectations for a 0.1% gain. Moreover, PPI excluding food, energy, and trade services saw a 0.6% jump, its most substantial one-month advance since January 2023.
These figures emerge shortly after the consumer price index (CPI) revealed persistently high inflation levels, standing at 3.1% from a year ago, slightly lower than December but still notably above the Federal Reserve’s 2% target. On a core basis, excluding volatile food and energy prices, the CPI increased by 3.9%.
Market reactions were notable following the release of the CPI data earlier in the week, with concerns that a similarly strong PPI figure could prompt further market turbulence. Expectations of aggressive interest rate cuts by the Federal Reserve have been tempered in recent days as inflation has proven more persistent than anticipated.
Stock market futures declined, and Treasury yields rose following the PPI report. Initially, markets had priced in the possibility of the first Fed rate cut as early as March, but expectations have since been adjusted to possibly June, as policymakers remain cautious about prematurely easing their inflation-fighting stance.
The increase in the wholesale index was primarily driven by a 0.6% rise in final demand services, notably including a 2.2% increase in hospital outpatient care. However, goods prices decreased by 0.2%, largely due to a 1.7% decline in final demand energy prices, particularly gasoline, which slid by 3.6%.
On a year-over-year basis, headline PPI rose by 0.9%, slightly lower than December’s 1% level. However, when excluding food, energy, and trade services, the index increased by 2.6%.
Additionally, the Commerce Department reported a significant decline in retail sales for January, down by 0.8%, exceeding expectations. These various economic indicators contribute to the ongoing assessment of the U.S. economic landscape and potential future monetary policy adjustments.