WASHINGTON — Wholesale prices in the U.S. have risen more than anticipated last month, signaling a halt in the fight against inflation, which further dampens the prospects for interest rate reductions this year.
Economists and market analysts express concerns that the policies initiated by President Donald Trump could further elevate inflation levels. His imposition of tariffs on imported goods and plans to deport a significant number of undocumented immigrants may result in higher consumer prices. On Thursday, President Trump announced his intention to sign an executive order that will raise U.S. tariffs to levels comparable to those imposed by other countries on their imports.
According to a report from the Labor Department, the producer price index (PPI), a measure that reflects inflation prior to consumer impact, experienced a 0.4% increase from December and a 3.5% rise compared to January 2024. This monthly gain marks a decline from a revised 0.5% increase noted in December, and the annual growth rate aligns with that of December as well. However, economists had anticipated a much lower month-over-month increase of just 0.2% and a year-over-year rise of 3.2%.
When excluding the fluctuating prices of food and energy, known as core producer prices, there was a 0.3% climb last month from December, with an annual increase of 3.6%. Prices for wholesale services rose by 0.3%, driven primarily by higher hotel expenses. On the other hand, goods and services prices surged by 0.6% largely due to increased energy costs, particularly a staggering 10.4% rise in diesel fuel prices. Wholesale food prices also spiked by 1.1% in January, heavily influenced by an unprecedented 44% surge in egg costs, a consequence of the bird flu epidemic.
This wholesale price data followed a troubling report from the Labor Department that indicated consumer inflation had risen by 3% in January compared to the previous year, an increase from December’s 2.9% annual rate.
Wholesale pricing trends can provide critical insights into potential future shifts in consumer inflation. These figures are of particular interest to economists as certain components, especially within health care and financial services, contribute to the Federal Reserve’s favored inflation measurement — the personal consumption expenditures (PCE) index.
Despite the unexpected increase in wholesale prices, analyst Paul Ashworth from Capital Economics remarked that the elements influencing the Fed’s preferred PCE price measurement were relatively calm overall, with only minor changes observed in several health care costs.
Inflation began to accelerate in early 2021 as the economy bounced back robustly from COVID-19 restrictions, leading to significant stress on supply chains, including factories and ports. This disruption resulted in shortages, delays, and rising prices.
In response to these inflationary pressures, the Federal Reserve took action by elevating its benchmark interest rate, known as the fed funds rate, 11 times over 2022 and 2023. This strategy was effective as inflation dropped from a peak of 9.1% in June 2022, which marked a 40-year high, to a low of 2.4% in September, edging closer to the central bank’s 2% target. Consequently, the Fed felt confident enough to implement three rate cuts in the last quarter of 2024.
However, this downward trend in inflation has ceased, with year-over-year consumer price inflation climbing for four consecutive months. In light of persistent inflation issues, the Fed may opt against further rate reductions. Back in December, it had suggested the possibility of two additional cuts in 2025, a scenario that seems considerably less probable now. Wall Street investors are forecasting only one rate cut this year, with that anticipated event not expected until October.
