US Producer Prices Rose 0.4% in January
The all-items PPI increased 3.5% over the past year, but futures pricing indicates the market now expects the Fed to hold off on lowering interest rates until October, as the PPI release comes ahead of the personal consumption expenditures prices index, which is the Fed's primary inflation gauge.
The US producer price index rose 0.4% in January, beating expectations, driven by a surge in energy and food prices, which may strengthen the case for the Federal Reserve to delay cutting interest rates until the second half of the year.
The increase in producer prices was led by a 1.7% jump in energy goods prices and a 1.1% surge in food prices, with egg prices skyrocketing 44.0% due to an avian flu outbreak. Services prices also increased 0.3%, led by a 5.7% surge in hotel and motel room prices. The rise in producer inflation may be a concern for the Federal Reserve, which is considering cutting interest rates.
The core PCE price index, a key measure tracked by the Fed, is expected to rise 0.2-0.3% in January, lower than the 0.4% gain forecasted after the CPI data. The stable labor market, with low layoffs and historically low unemployment, is expected to continue, but some economists believe the window for further policy easing has closed. The wholesale prices rose 3.4% in January, exceeding expectations of a 3.2% increase, according to the Labor Department's Producer Price Index.
The PPI report suggests that inflation is still a concern, which may hinder the Federal Reserve's plans to cut interest rates. The S&P 500 and Dow Jones ticked up less than 1% on Thursday, but the inflation data did not surprise the market after a hot consumer price index (CPI) report on Wednesday. Despite the PPI data, some economists believe the Fed may still cut interest rates in 2025 if housing and residential rents continue to cool and offset upward pressures on inflation.
The Bureau of Labor Statistics reported that the producer price index (PPI) increased by 0.4% in January, exceeding the Dow Jones estimate of 0.3%. The core PPI, excluding food and energy, rose 0.3% in line with the forecast. The report suggests a slightly more benign inflation picture, with easing costs in healthcare, airfares, and brokerage services.
