Washington's producer prices (Reuters) increased firmly in January, offering more evidence that inflation was rising again and strengthening views on the financial market that the federal fund would not cut interest rates before the second half of the year.
The wide increase in producer inflation reported by the Labor Department on Thursday on Wednesday news heels followed that consumer prices had accelerated by the largest in nearly 1-1/2 years in January. However, some details of the report suggested a more modest increase in January in the key inflation measures tracked by the US Central Bank for its 2% target than forecasted by the strong CPI data.
Economists warned that inflation is on the verge of tending even higher as President Donald Trump pressed forward with extensive tariffs on imports as well as mass deportation that could cause labor shortages and raise wages and goods prices.
“The report gives a break to scale broken expectations, however, as higher business costs are likely to convert up on consumer prices in the coming months,” said Kurt Rankin, a senior economist at PNC Financial. “Tariffs continue to be threatened by the Trump administration, which would increase costs for businesses in general.”
The producer's price index for final demand rose by 0.4% last month after a 0.5% earnings reviewed up in December, says the Labor Department's Office of Labor (BLS) statistics. Economists surveyed by Reuters had predicted that the PPI will rise by 0.3%.
In the 12 months through January, the PPI developed 3.5% after increasing by the same edge in December. With the January PPI report, the BLS updated pressure to reflect price movements in 2024, and seasonal adjustment factors, the model the government uses to remove seasonal variations from the data.
The increase in the PPI was across goods and services. Wholesale goods prices jumped 0.6% after rising 0.5% in December. More than half of the 1.7% leap in the prices of energy goods came. Food prices shot up 1.1%, with egg prices ascending 44.0% in the middle of a bird flu case. With the exception of food and energy, commodity prices were bordering at 0.1% for a straight month.
Services increased by 0.3% after climbing 0.5% in December. A surge of 5.7% in wholesale prices of hotel and motel rooms accounted for more than a third of the increase in services.
There has also been an increase in wholesale prices of car retail, road freight transportation, food and alcohol retail as well as clothing, jewelry, shoes and accessories in retail and telecommunications bundled wiring.
But margins for fuel retail and lubricants decreased 9.8%. Portfolio control fees rose 0.4%, while the prices of airlines fell by 0.3%. A doctor's care prices fell by 0.5% and the cost of hospital inpatient care fell by 0.3%. Hospital outpatient care prices declined 0.4%.
Portfolio management fees, healthcare, hotel and motel accommodation and airlines are among the components going to the Personal Usage Expenditure Price Index (PCE) computation, except food and energy, one of the measures tracked by the Fed for monetary policy.
With the CPI and PPI data in hand, economists' estimates for the increase in the core PCE price index in January ranged from 0.2% to 0.3%. That was lower than the 0.4% earnings predicted the majority after the CPI data. Core inflation climbed 0.2% in December. It was anticipated that it will increase by 2.6% year -on -year in January, down from the estimated 2.7% following the CPI report. Annual core inflation was 2.8% in December.
“The Fed is still able to declare, therefore, that progress in returning inflation to its 2% objective is still being made,” said Samuel Tombs, US chief economist at Pantheon Macroeconomics.
Stocks on Wall Street rose as investors focus on the predicted tame core PCE inflationary readings. The dollar fell against a basket of currency. The US Treasury product slipped.
Fixed labor market
Financial markets have pushed cut expectations back to September from June, although some economists believe that the window for relieving further policy has closed, citing strong domestic demand and a stable labor market.
Fed Chairman Jerome Powell told law makers on Wednesday “We are close but not there on inflation,” adding “We want to keep policy restrictive for the time being.”
The Fed left its benchmark overnight interest rate unchanged in the 4.25% -4.50% range in January, after its reduced 100 base points since September, when it launched its policy alleviation cycle. The policy rate was walked by 5.25 percentage points in 2022 and 2023 to tame inflation.
The Fiscal, Trade and Immigration Policies of Trump's administration are seen in Fanning inflation. A 25% tariff on Canadian and Mexico goods was suspended until March. But an additional 10% tariff on Chinese goods came to power this month.
The stability of the labor market was confirmed by a separate report by the Department of Labor which showed initial claims for the benefit of State Unemployment 7,000 to 213,000 seasonally adapted for the week ending February 8.
Economists had predicted 215,000 claims for the latest week.
Claims have tended lower so far this year, consistent with low historical layoffs and are helping to base the economic expansion. However, employment opportunities for those who lose their jobs are no longer as abundant as they were a year or two ago, with businesses adopting a waiting and see attitude. Nonfarm payrolls increased by 143,000 jobs in January, while the unemployment rate was at 4.0%.
The number of people receiving benefits after an initial week of support, a deputy for hiring, decreased 36,000 to 1.850 million seasonally modified during the week ending February 1, the report showed claims.
“The business sector is still in wait-and-see mode to see what, if any, it could be for global supply chains as price uncertainties making it more difficult to expand operations,” Ben Ayers, senior economist at Nationwide, said.
(Reported by Lucia Mutiati; Edited by Chizu Nomiyama and Andrea Ricci)
