Wholesale prices moved up 0.4 percent in January to hit a 3.5-percent annual increase, undergirding consumer inflation that broke 3 percent last month for the first time since the second quarter of 2024.
The producer price index (PPI), a measure of the wholesale prices that businesses pay each other before selling to consumers, advanced 0.6 percent for final demand goods and 0.3 percent for final demand services last month, the Labor Department reported Thursday.
Economists predicted the PPI to rise 3.2 percent, according to consensus estimates, so the 3.5-percent increase comes in above expectations.
Wholesale prices, which are more volatile and make bigger movements than retail prices, had been deflating over the fall but ticked into positive territory in November and December, jumping 1.5 percent last month on an annual basis.
Within services, traveler accommodation costs increased 5.7 percent, accounting for more than a third in the rise in services PPI, the Labor Department noted.
Within goods, a 10.4-percent increase in diesel fuel index prices was “a major factor” in the overall increase for final demand goods.
“Wholesale price growth came in slightly higher than expected for January, and the read for December was adjusted upward. In other words, inflation at the producer level remains high,” NerdWallet economist Elizabeth Renter wrote in a Thursday commentary.
Analysts also noted the increase in prices for inputs at the intermediate stage of production.
“Prices for inputs in early-stage intermediate demand grew at the fastest pace since 2023, meaning companies are seeing raw inputs rise across goods and services,” Scott Helfstein, head of investment strategy at Global X, wrote.
Prices in the consumer price index (CPI) have increased for four months in a row, ticking up steadily to 3-percent increase in January from a 2.4-percent increase in September.
These increases occurred as the Federal Reserve started cutting interest rates over the fall, slashing them initially in September by a half-percent. Interest rate changes by the Fed usually take months to work their way through the economy, and the central bank has faced some criticism for being out of step with the movement of prices.
Thursday’s hot number in the PPI is likely to bolster arguments that the Fed should continue with its pause in cutting rates.
“We know Fed Chair Powell has said they’re moving cautiously with any rate adjustments, and it’s become clear this week (if it wasn’t already) that the campaign to get inflation down is far from over,” Renter said.
