Producer Price Index Increases 0.7% in January, Signaling Inflationary Pressures

On Thursday, the U.S. Bureau of Labor Statistics reported that the Producer Price Index for final demand increased 0.7% in January, seasonally adjusted.[0] This was higher than the 0.4% rise expected by economists surveyed by Dow Jones. The index for final demand less foods, energy, and trade services rose 0.6%, the largest advance since March 2022.[1]

Market participants keep a close eye on the Producer Price Index (PPI) as a gauge of wholesale inflation.[2] Producers usually charging more to consumers is seen as a key indicator, because of this.[2] The PPI announcement is of great importance to the Federal Reserve as they ponder the amount of rate hikes they will have to implement before ceasing.[2]

According to a Bloomberg survey of economists, the median estimates predicted a 0.4% rise in the index from the preceding month and a 5.4% increase from January 2022.[0] Following the report, the S&P 500 dropped and Treasury yields increased.[3] Core prices, not taking food and energy into account, increased by 5.4%, which was higher than the predicted 4.9%, but lower than the 5.5% of the preceding report.[4]

One of the major factors behind the rise in the PPI was a 1.2-percent rise in prices for final demand goods. The cost of services for ultimate consumption rose as well, with a 0.4 percent increase.[5] The index for final demand services less trade, transportation, and warehousing increased 0.6%, while hospital outpatient care prices rose 1.4%.[6]

Overall, the increase in producer prices is indicative of persistent inflationary pressures that could push the Federal Reserve to pursue further interest-rate increases in the months ahead.[3] The Fed currently holds its benchmark federal-funds rate in a range between 4.5% and 4.75%, the highest level since 2007. Analysts expect the Fed to increase interest rates a few more times this year, with the final rate ending around a range of 5.25%-5.55%.

The January inflation increase has been attributed by economists largely to seasonal factors, as well as compensation for previous months that had lower price increases.[7] The unusually mild winter could have been a factor, and fuel prices, which are unpredictable, also rose during the month.[7]

0. “Higher Gasoline Prices Drive U.S. Producer Price Index Higher” OilPrice.com, 16 Feb. 2023, https://oilprice.com/Latest-Energy-News/World-News/Higher-Gasoline-Prices-Drive-US-Producer-Price-Index-Higher.html

1. “Producer price index reacclerates in January” Seeking Alpha, 16 Feb. 2023, https://seekingalpha.com/news/3937158-producer-price-index-reacclerates-in-january

2. “Crypto Market Tumbles After U.S. PPI Data Comes At 6%” CoinGape, 16 Feb. 2023, https://coingape.com/crypto-market-tumbles-after-u-s-ppi-data-rises-0-7-in-january/

3. “U.S. producer prices exceed forecast in biggest gain since June” The Spokesman Review, 16 Feb. 2023, https://www.spokesman.com/stories/2023/feb/16/us-producer-prices-exceed-forecast-in-biggest-gain

4. “U.S. Producer Prices Climb 0.7% In January, More Than Expected” RTTNews, 16 Feb. 2023, https://www.rttnews.com/3344710/u-s-producer-prices-climb-0-7-in-january-more-than-expected.aspx

5. “Producer Prices Rose 0.7% in January” Floor Focus, 16 Feb. 2023, https://www.floordaily.net/flooring-news/producer-prices-rose-07-in-january

6. “Producer Prices Rose in January, Signaling Continued Inflation” The Epoch Times, 16 Feb. 2023, https://www.theepochtimes.com/product-price-hikes-signal-continued-inflation_5063616.html

7. “Wholesale prices rose 0.7% in January, more than expected, fueling inflation increase” CNBC, 16 Feb. 2023, https://www.cnbc.com/2023/02/16/producer-price-index-january-2023-.html