0.5% Hotter-Than-Expected Wholesale Inflation Pressures Federal Reserve/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. wholesale inflation accelerated in January, rising more than economists had forecast. Core producer prices posted their biggest annual gain since March 2025. The stronger data could keep the Federal Reserve cautious on rate cuts.
US Producer Price Index January Quick Looks
- Producer Price Index (PPI) rose 0.5% month over month.
- Wholesale prices increased 2.9% from a year earlier.
- Core PPI climbed 0.8% monthly and 3.6% annually.
- Services inflation led by higher retail and wholesale margins.
- Core goods prices rose on cosmetics, pet food and machinery.
- Energy and food prices declined.
- Consumer inflation previously reported at 2.4% annually.
- Economists expect Fed to pause rate cuts in March.
Deep Look: 0.5% Hotter-Than-Expected Wholesale Inflation Pressures Federal Reserve
WASHINGTON — U.S. wholesale inflation picked up more than expected in January, adding fresh uncertainty to the Federal Reserve’s interest rate outlook.
The Labor Department reported Friday that its Producer Price Index (PPI), which tracks inflation at the wholesale level before it reaches consumers, rose 0.5% from December. On an annual basis, producer prices increased 2.9% compared with January 2025.
Economists surveyed by FactSet had anticipated a smaller 0.3% monthly increase and a 1.6% year-over-year rise.
Core Prices Show Stronger Pressure
Excluding volatile food and energy categories, so-called core wholesale prices jumped 0.8% in January and climbed 3.6% over the past year. Both readings exceeded expectations, and the annual core increase marked the strongest gain since March of last year.
Much of the increase came from the services sector, particularly higher margins for retailers and wholesalers. Analysts say that pattern suggests businesses may be passing along higher import costs tied to President Donald Trump’s tariffs.
“Retailers’ tariff bill has come down marginally in the last few months, but they have continued to lift their selling prices,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Core goods prices also rose 0.7% from December and were up 4.2% year over year. Notable price gains were reported in cosmetics, pet food, certain metals and metal-cutting machinery.
Energy and Food Provide Relief
Energy prices offered some offset. Wholesale gasoline prices fell 5.5% from December and were down 15.7% compared with a year earlier. Food prices at the wholesale level also declined.
The mixed signals highlight the uneven nature of inflation pressures. While energy costs have eased, services inflation — often stickier and more persistent — continues to trend higher.
Implications for the Federal Reserve
The PPI report follows data earlier this month showing that consumer prices rose 2.4% in January from a year earlier, bringing overall inflation closer to the Federal Reserve’s 2% target.
Still, wholesale prices are closely watched as a potential early indicator of future consumer inflation. Some PPI components, including healthcare and financial services, feed directly into the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index.
In December, the PCE index rose 2.9% year over year, marking its fastest pace since March 2024 and raising concerns that inflation progress may be stalling.
The Federal Reserve cut its benchmark interest rate three times last year to support a softening labor market. However, policymakers have signaled caution about additional cuts until inflation shows clearer signs of easing.
Following Friday’s report, economists suggested the latest data could reinforce that cautious stance.
“We expect the Fed to remain on pause during its upcoming March meeting,” said Ben Ayers, an economist at Nationwide.
Outlook
Although inflation has cooled significantly from its post-pandemic highs, January’s stronger-than-expected wholesale data underscores that price pressures remain embedded in parts of the economy — particularly services.
For businesses, the report signals continued margin management amid tariff pressures and shifting input costs. For consumers, it raises questions about whether price stability will arrive as quickly as policymakers had hoped.
With inflation still above the Fed’s target and economic growth holding steady, central bank officials appear likely to take a wait-and-see approach in the coming months.
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