Producer prices surge 0.5% in January, core wholesale inflation jumps 0.8%

U.S. producer prices for final demand rose 0.5% in January, the Bureau of Labor Statistics reported on Feb. 27, a bigger-than-expected advance that Reuters and Bloomberg said was the largest monthly gain since September. Economists polled by Reuters had forecast a 0.3% increase, and December’s reading was revised down to a 0.4% rise, underscoring a stronger-than-anticipated turn in wholesale inflation.

An underlying measure that excludes food and energy climbed sharply. CNBC reported that the core producer price index, which excludes volatile food and energy prices, increased a seasonally adjusted 0.8%, well above the Dow Jones consensus of 0.3% and higher than December’s 0.6% gain. Reuters noted that a 0.8% jump in services accounted for the headline rise. Reuters added that the services increase “reflected a 2.5% increase in trade services, which measure changes in margins received by wholesalers and retailers.”

Wholesale margins were concentrated in a small set of channels. Reuters reported a 14.4% surge in margins for professional and commercial equipment wholesaling, a move Reuters said was “suggesting businesses were passing on tariffs.” CNBC quantified the broader contribution, saying more than 20% of the services increase came from that wholesaling margin jump.

The goods side painted a contrasting picture. Producer goods prices fell 0.3% in January, Reuters and CNBC said, as energy prices retreated 2.7% and food prices declined 1.5%. Still, Reuters reported that goods excluding food and energy rose 0.7%, indicating upward pressure beneath headline declines. CNBC highlighted a sharp 4.8% jump in metals prices as a notable subcomponent.

On an annual basis, the PPI rose 2.9% in the 12 months through January after a 3.0% gain in December, Reuters and CNBC reported. CNBC said core wholesale prices accelerated 3.6% year over year, and both headline and core wholesale inflation remain above the Federal Reserve’s 2% target.

The data feed directly into the inflation measures the Fed watches. Reuters noted that some PPI components go into the Personal Consumption Expenditures price indexes, and that economists had estimated core PCE inflation could rise as much as 0.5% in January, which would translate to a roughly 3.1% year-on-year gain. The government will publish the delayed PCE inflation report on March 13, Reuters said.

Market reaction was immediate. CNBC reported that stock index futures pared gains and “added to losses” after the PPI release, reflecting investor concern that sticky wholesale inflation could sustain price pressures down the chain to consumers and complicate monetary policy choices.

Policy implications are stark. Reuters framed the report as consistent with businesses passing on higher costs from import tariffs, saying the move was “likely as businesses passed on higher costs from import tariffs, suggesting inflation could pick up in the months ahead.” Bloomberg and CNBC both described the January increases as pointing to lingering inflationary pressures that could make the Federal Reserve’s path to 2% inflation more uncertain. The report had been delayed by a brief federal government shutdown earlier in the month, Reuters noted.