Northwest Arkansas Democrat-Gazette
January wholesale prices up 0.7%
Energy-driven 7-month high dims hopes for Fed rate cuts
Producer prices in the United States reaccelerated in January, underscoring persistent inflationary pressures that are expected to push further interest rate increases by the Federal Reserve in the months ahead.
On a month-to-month basis — similar to U.S. consumer prices last month — the producer price index jumped 0.7% in January, the most since mid-2022, bolstered by higher energy costs, according to data released Thursday by the Bureau of Labor Statistics. The index climbed 6% from a year earlier.
Median estimates in a Bloomberg survey of economists called for the overall index to increase 0.4% from December and 5.4% from January 2022. Excluding the volatile food and energy components, the so-called “core” PPI advanced 0.5% in January and 5.4% from a year earlier.
Stocks on Wall Street posted their biggest drop in four weeks on the news. The benchmark S&P 500 fell 1.4% to 4,090.41. The Dow Jones Industrial Average fell 1.3% to 33,696.85, while the Nasdaq dropped 1.8% to 11,855.84.
The data Thursday arrived just days after the closely watched consumer price index showed lingering and still- elevated inflationary pressures despite the Fed’s aggressive monetary policy actions over the past year.
The CPI was up 6.4% in the 12 months through January. That was a tick down from 6.5% annually in December and down notably from a peak of about 9% last summer. But compared with the previous month, core prices climbed 0.4%, a rapid pace of growth that matched the increase in December.
The producer price data measures inflation before it reaches consumers, reflecting prices charged by manufacturers, farmers and
wholesalers. The measure has generally been cooling in recent months amid improving supply chains, a pullback in many commodities prices and a tempering in goods demand.
That said, inflation appears to be stickier than many analysts anticipated. Looking ahead, the strength of the labor market, as well as global commodities prices, will be key for the overall picture of U.S. inflation.
“While producer prices are off their peaks, inflation is elevated and the monthly change in prices showed a move in the wrong direction last month,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note. “These data will keep the Fed on track to raise interest rates further.”
While the overall wholesale figure was bolstered by a 1.2% jump in goods prices, also the largest since June, some key services measures rose firmly. Hospital outpatient care increased 1.4% last month, while price indexes for auto retailing, portfolio management and airline services also moved higher.
So-called “other” services increased 0.6%, the most in a year.
Several categories from the wholesale report, notably in health care, are used to calculate the personal consumption expenditures price index, which the Fed tracks in monitoring its 2% overall inflation goal. Those figures will be released next week.
Wholesale prices excluding food, energy, and trade services — the most volatile components of the index — increased 0.6%, the sharpest advance since March.
The overall report showed food prices dropped 1%, the most since December 2020, after a 0.9% slide at the end of 2022. Energy prices increased 5%, the most since June. Excluding the food and energy components, final demand for goods advanced 0.6%, the biggest advance since May.
Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, increased for the first time since June. Excluding food and energy, those prices slid for a seventh month.
The producer-price report also incorporated annual revisions released earlier this week that did not meaningfully change the path of wholesale prices in late 2022.
Since March 2022, the Fed has raised its benchmark interest rate eight times in hopes of slowing the economy enough to conquer high inflation.
The rate increases have had the broader economic effect of raising the costs of mortgages and auto loans, as well as credit card interest rates.
Despite higher borrowing costs, the U.S. job market has remained surprisingly strong. Employers added a sizzling 517,000 workers last month — nearly three times what forecasters had expected — and the unemployment rate fell to 3.4%, lowest since 1969.