A report said wholesale prices rose more than expected in January, further complicating the inflation picture. U.S. Department of Labor Report Friday.
The producer price index, which measures the prices received by domestic producers of goods and services, rose 0.3% this month, the largest increase since August. Economists surveyed by Dow Jones had expected growth of just 0.1%. PPI fell by 0.2% in December.
Core PPI, which excludes food and energy, rose 0.5%, also beating expectations for a 0.1% rise. The PPI, which excludes food, energy and trade services, rose 0.6%, the largest monthly increase since January 2023.
The report comes days after the consumer price index showed inflation remains elevated despite the Fed’s forecast for a slowdown throughout the year. CPI rose 3.1% year-on-year, lower than December’s level but still well above the Federal Reserve’s 2% inflation target.
The Federal Reserve focuses more on using it as a long-term inflation indicator. On a core basis, CPI rose 3.9%. CPI differs from PPI in that it measures the price consumers actually pay in the market.
The market fell sharply following the release of consumer price index (CPI) data on Tuesday, with concerns that overheating PPI data could also trigger another shock. Expectations have been rising that the Fed will use loose inflation data as motivation for sharp interest rate cuts this year, but traders have been forced to scale back those expectations in recent days as inflation showed unexpected persistence.
Stock futures were lower after the PPI report and a surge in Treasury yields.
Just a few weeks ago, markets were pricing in the Federal Reserve’s first rate cut in March. Policymakers have since expressed caution about abandoning the fight against inflation too quickly, while noting that a stable economy buys them time before having to act, which has been cut back to June.
A 0.6% rise in final demand services pushed the wholesale index higher, which itself was boosted by a 2.2% rise in hospital outpatient care. Commodity prices fell 0.2% in real terms as gasoline fell 3.6% and final energy demand fell 1.7%.
From a 12-month perspective, the overall PPI grew by only 0.9%, slightly lower than the 1% level in December. However, excluding food, energy and trade services, the index rose 2.6%.
In addition to worrying inflation data, the U.S. Commerce Department reported this week that retail sales fell 0.8% in January, far exceeding expectations.
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