January wholesale inflation saw biggest monthly increase since August

By Alicia Wallace, CNN

New York (CNN) — Wholesale inflation, as measured by the Producer Price Index, rose more than expected in January, adding to what has so far been a disappointing inflation picture for the month.

The Producer Price Index rose 0.3% last month, resulting in an annual increase of 0.9%, according to Bureau of Labor Statistics data released Friday.

Price hikes among services providers drove the overall uptick in January, rising 0.6% for the month. Some of the biggest increases were in hospital care, traveler accommodation and portfolio management.

Despite coming in hotter than economists had expected (a projected 0.1% monthly increase and a 0.7% annual gain, according to FactSet), the annual increase is in line with what was seen during the last quarter of 2023. It’s also the third-lowest rate notched since the pandemic’s upheaval of supply chains and remains well below the pre-pandemic average of 1.7%

However, the monthly increase of 0.3% was the highest since August 2023, BLS data shows.

PPI captures average price shifts before they reach consumers and serves as a potential signal for the prices consumers ultimately end up paying.

“Inflation is back, not in a big way, but it is also true that it is not going away and could yet wreak havoc on the broader economy where higher factory prices increase inflation at the consumer level,” economist Chris Rupkey, of FwdBonds, wrote Friday.

Goods producer prices fell for the fourth consecutive month, and food producer prices dropped for the second month in a row.

Within food, eggs continue to post wild price swings amid a bout of avian flu that hit some producers’ flocks. Egg prices jumped 14.6% in January after falling 20.5% in December and soaring 71.2% in November.

For now, economists believe this latest avian flu won’t be as severe as the one in 2022 that devastated flocks and sent egg prices sky-high (at one point rising 70% year over year). As of January, producer prices for eggs for fresh use are down nearly 50% from a year before.

In separate data, the latest consumer sentiment survey from the University of Michigan showed that US consumers now expect inflation to reach 3% within the next 12 months. While that’s a slight increase from last month’s expectation of 2.9%, “consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue,” wrote Surveys of Consumers Director Joanne Hsu in a statement Friday.

What this all means for the Fed

When stripping out the food and energy categories, which tend to be more volatile, core PPI jumped 0.5% for the month, bringing the yearly increase to 2%, an acceleration from December’s 1.7% gain.

Although overall producer prices for goods declined in January, that was mostly driven by food and energy. Core goods prices increased for the month, although relatively modestly, but still could indicate some effects from broader geopolitical disruptions, noted Matthew Martin, US economist for Oxford Economics.

“Signs of supply-chain disruptions and increasing goods prices were clear in January, though,” Martin said. “For now, the pass-through of shipping costs has not translated into markedly higher goods prices, but geopolitical tensions and supply disruptions lend upside risks to our forecast.”

Economists had expected core PPI to rise 0.2% for the month and 1.8% annually, according to FactSet consensus estimates.

The warmer-than-expected PPI data caps off a week that saw the latest Consumer Price Index not slowing as much as economists would have thought.

The January CPI showed that retail-level prices rose by 3.1% annually. While that marked a step back from December’s 3.4% rate and a dramatic cooling from the 6.4% increase seen in January 2023, the index didn’t cool to the 2.9% level economists were projecting. The disappointing reading sent the Dow tumbling more than 500 points on Tuesday.

Still, Friday’s PPI data is unlikely to alter the Federal Reserve’s intended path for interest rate cuts this year, Martin added.

“While the labor market remains resilient, the necessary evidence of broader wage growth deceleration is still in place,” he wrote. “However, January’s string of price reports underscores the easing cycle is likely to be gradual and those calling for a rapid descent are likely to be disappointed.”

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