Daily Management Review

US January Wholesale Prices Increase More Than Anticipated, Which Is Another Indication Of Ongoing Inflation


US January Wholesale Prices Increase More Than Anticipated, Which Is Another Indication Of Ongoing Inflation
According to a US Department of Labour data released on Friday, wholesale prices in the US increased more than anticipated in January, further clouding the picture of inflation.
The largest increase since August was recorded by the producer price index, which tracks the prices paid to domestic producers of products and services. This month's increase was 0.3%. The Dow Jones survey of economists had predicted an increase of just 0.1%. December saw a 0.2% decline in PPI.

When food and energy are taken out, core PPI climbed by 0.5%, which was also more than the 0.1% gain predicted. The PPI increased by 0.6%, the most in a single month since January 2023, when food, energy, and trade services were excluded.

The data was released a few days after the consumer price index revealed that inflation was continuing to rise despite the Federal Reserve's forecast that it would moderate over the course of the year.
Although it fell down from its December level, the CPI was still 3.1% higher than the Fed's target of 2% inflation.

The CPI increased 3.9% on a core basis, which is a longer-term measure of inflation that the Fed is more concerned about. In contrast to PPI, CPI gauges what consumers really pay on the open market.

Following Tuesday’s CPI report, markets plummeted, and concerns arose that a strong PPI number may trigger even more volatility. In recent days, traders have had to reduce their expectations as inflation has shown unexpected resilience. Initially, expectations were strong that the Fed would use the lowering inflation data as motivation to slash interest rates aggressively this year.
Following the PPI news, Treasury yields increased and stock market futures decreased.
The markets had already priced in the first Fed rate drop in March, just a few weeks prior. Since then, it has been reduced to June as officials have warned against giving up the fight against inflation too soon and have pointed out that an otherwise solid economy gives them time before they must make changes.

The wholesale index was helped up by a 2.2% increase in hospital outpatient care and a 0.6% increase in final demand service. Because of a 1.7% drop in final demand energy and a 3.6% dip in petrol costs, goods prices actually fell by 0.2%.
The headline PPI grew by 0.9% over a 12-month period, which was just less than the 1% figure in December. But when trade services, energy, and food were taken out, the index increased by 2.6%.

The Commerce Department revealed this week that retail sales in January fell by 0.8%, much more than predicted, in addition to the concerning inflation figures.