Wholesale inflation rebounded in January as producer prices rose more-than-expected earlier in the year, the Labor Department reported on Thursday.
The producer price index, a measure of what commodities are fetching on the open market, rose 0.7% for the month, the sharpest rise since June. Economists polled by Dow Jones had expected a 0.4% rise after a 0.2% decline in December.
Excluding food and energy, the core PPI rose 0.5% compared to an expected 0.3% increase. Core services excluding trade services rose 0.6%, against an estimate for a 0.2% increase.
On a 12-month basis, the headline PPI rose 6%, still elevated but well below its peak of 11.6% in March 2022.
Markets fell after the release, with futures tied to the Dow Jones Industrial Average down about 200 points.
Although the PPI isn’t tracked as closely as some other inflation measures, it can be a leading indicator because it measures the initial price that producers achieve in the open market.
The PPI rise coincided with a 0.5% rise in January in the consumer price index, which measures the prices consumers pay for goods and services. Taken together, the metrics show that while inflation appeared to be slowing towards the end of 2022, the year started with a bang.
Economists attribute the rise in inflation in January mainly to some seasonal factors and the amortization of previous months, which showed more subdued inflation. An unseasonably warm winter may also have played a role, while volatile fuel prices also jumped during the month.
A report on Wednesday showed that consumer spending more than kept pace with inflation as retail sales rose 3% for the month and 6.4% year-on-year.
In other economic data, the Labor Department reported Thursday that jobless claims fell to 194,000, down 1,000 and below the Dow Jones estimate of 200,000. The Philadelphia Federal Reserve manufacturing index for February also fell to -24.3, well below the -7.8 estimate.
Fed policymakers are intensely focused on inflation, so January’s numbers are unlikely to change their stance that while progress is being made, no abating is likely.
“My expectation is that we will see a significant improvement in inflation this year and further improvement the following year, with inflation hitting our 2% target in 2025,” said Loretta Mester, Cleveland Fed President, in a speech on Thursday morning. “But my outlook depends on appropriate monetary policy.”
Markets are expecting the Fed to hike rates a few more times this year, according to data from CME Group, with the final, or “final rate,” ending in a 5.25% to 5.5% range, from currently 4.5% to 4.75%. .
The higher PPI came amid a 5% increase in energy costs but a 1% drop in groceries. The final demand index for goods rose 1.2%, the biggest monthly gain since June. About a third of that gain came from the gasoline index, which rose 6.2%.
The services index rose 0.4%, driven by a 0.6% price increase for retail services excluding trade, transport and warehousing. Another important factor was a 1.4% increase in the ambulatory hospital care index.