Monthly Increase Driven by Services
U.S. wholesale prices climbed more than anticipated in January, adding to concerns that inflation pressures could firm in coming months. The Producer Price Index (PPI) for final demand rose 0.5% last month, following a downwardly revised 0.4% gain in December, according to the Labor Department’s Bureau of Labor Statistics.
Economists surveyed by Reuters had expected a 0.3% increase. The stronger reading suggests that some businesses may be transferring higher costs, including those linked to import tariffs, to customers.
A 0.8% surge in services prices accounted for much of the monthly advance. Trade services, which reflect margins earned by wholesalers and retailers, jumped 2.5%. Margins for professional and commercial equipment wholesalers climbed 14.4%, indicating firms may be adjusting prices to offset higher input expenses.
Tariff-Linked Pressures Emerge
Price increases were also recorded in apparel, footwear and accessories retailing, chemicals and related product wholesaling, bundled wired telecommunications services, health and beauty goods retailing, and food and alcohol stores.
Goods prices, however, declined 0.3% for the month. Energy costs dropped 2.7% while food prices fell 1.5%. Excluding food and energy, goods prices advanced 0.7%, suggesting underlying cost pressures remain present.
On a year-over-year basis, producer prices rose 2.9%, slightly below December’s 3.0% pace. The modest slowdown reflects prior high readings rolling out of the annual comparison.
Implications for Federal Reserve Policy
Several elements within the PPI feed directly into the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge tied to its 2% target.
Before the PPI release, analysts had projected core PCE to climb as much as 0.5% in January, which would imply an annual increase of approximately 3.1%. Core PCE rose 0.4% in December and was up 3.0% year over year.
The government is scheduled to publish the delayed PCE inflation report on March 13. The PPI figures were themselves released after a brief federal government shutdown earlier this month postponed their publication.
The latest data reinforce uncertainty surrounding the trajectory of inflation and could influence expectations for the Federal Reserve’s policy path in the months ahead.