US Producer Prices Rise in January, Reinforcing Inflationary Pressure
Producer prices in the United States rose significantly in January, further indicating an uptick in inflation and corroborating financial market expectations that the Federal Reserve (Fed) will maintain interest rates until at least the second half of the year.
According to the Bureau of Labor Statistics (BLS), the producer price index (PPI) for final demand increased by 0.4% in January, following an upwardly revised 0.5% rise in December. The market had predicted a 0.3% increase.
Over the 12-month period ending in January, the PPI grew by 3.5%, up from 3.3% in December.
This report follows Wednesday's announcement that consumer prices experienced their largest monthly increase in nearly 1.5 years in January, diminishing hopes of a rate cut by the Fed in June.
Financial markets now anticipate a rate reduction in September, although some economists question the viability of further easing, citing robust domestic demand and a resilient labor market.
Fed Chair Jerome Powell stated on Wednesday that "we are close but not there on inflation," emphasizing the Fed's intention to maintain a restrictive monetary policy.
In January, the Fed kept its benchmark overnight interest rate in the 4.25%-4.50% range, having lowered it by 100 basis points since September when it commenced its easing cycle. The policy rate was raised by 5.25 percentage points in 2022 and 2023 to curb inflation.
President Donald Trump's policies on fiscal matters, trade, and immigration have been credited with contributing to inflation. A 25% tariff on goods from Canada and Mexico has been suspended until March, while a 10% tariff on Chinese goods took effect this month.
The BLS also updated the PPI report for January to include revised weights reflecting price shifts in 2024, as well as seasonal adjustment factors used to eliminate seasonal fluctuations in the data.