Producer prices rose in January but annual inflation continued to cool

By Alicia Wallace, CNN

A key inflation metric showed wholesale prices picked up in January from December but continued to cool on an annual basis, according to data released Thursday by the Bureau of Labor Statistics.

The Producer Price Index, which measures what suppliers are charging businesses, rose 6% for the year ending in January. That’s down from December’s revised 6.5% and is at its lowest level since March 2021.

On a monthly basis, US producer prices jumped by 0.7% from December. It’s the largest month-on-month gain since June 2022, BLS data shows.

Economists were projecting year-over-year growth of 5.4% and a monthly gain of 0.4%, according to Refinitiv estimates.

The January PPI data showed a rebound in supplier goods prices, an increase driven by higher energy prices, BLS data shows. The final demand goods index popped up 1.2% last month — the highest gain since June 2022 — after declining for three consecutive months.

The services index increased 0.4%, even with December’s monthly gain.

Year-over-year food prices moderated to 11.6% — still historically high, but the lowest annual increase since October 2021. Suppliers’ food prices started spiking in June 2021.

Stripping out the often volatile food and energy categories, core PPI rose 5.4% annually and 0.5% monthly.

Strengthening data

“Most of the ways you cut [the data], it surprised, relative to expectations, and generally speaking, it was a broad-based upside surprise,” Michael Pugliese, senior economist with Wells Fargo, told CNN. “It was one more report that showed the opposite of what the [Federal Reserve] was hoping for coming into the new year, whether it was the CPI report, the employment report … it seems like the data strengthened around the turn of the year.”

PPI is one of several closely watched inflation gauges. Because the producer-centric index captures price shifts upstream of the consumer, it’s sometimes looked to as a potential leading indicator of how prices may eventually land at the store level.

“January’s PPI report is a setback in the battle against inflation,” Kurt Rankin, PNC’s senior economist, wrote in a note Thursday. “PPI increases translate into CPI gains with a lag as producers pass their costs — both in terms of raw materials and in transportation of goods to market — on to consumers.”

Thursday’s data reinforces a current storyline of US inflation: Prices are cooling, but the path down to the Fed’s 2% target may be a choppy one.

Earlier this week, the Consumer Price Index — which measures price changes for a broad basket of goods and services — showed prices increased 0.5% in January from the month before while annual increases ticked down by 0.1 percentage point to 6.4%.

“Today’s wholesale inflation data, when coupled with the CPI report, suggests that the easy battles against price pressures have been won,” John Lynch, chief investment officer for Comerica Wealth Management, said in a statement. However, he said the Fed will remain “steadfast” with “tighter policy, and for longer.”

The Fed is in the throes of a heavy-handed effort to rein in inflation, which hit a 40-year high last summer; and the central bank has raised its benchmark rate eight times since March.

The size of those rate hikes has moderated in recent Fed policymaking meetings, with officials approving a quarter-point hike last month.

Fed policymakers will next meet a month from now, when they’re largely expected to increase rates by another quarter point, according to CME Group’s FedWatch tool. More key inflation and labor market data are set to be released before then — but as it stands now, the Fed will likely have to remain hawkish, Pugliese said.

“I think it shows just how far we are from an actual outright easing in monetary policy,” he said.

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