Despite longer-term signs of improvement, wholesale prices in the United States rose again in January, indicating that inflationary pressures continue to underpin the economy.
The government’s producer price index increased 0.7% from December to January, driven in part by a 5% increase in energy prices. This increase contrasted with a 0.2% decline from November to December, and was roughly double what economists had predicted.
Prices charged by manufacturers, farmers, and wholesalers are reflected in the producer price index, which the Federal Reserve constantly monitors. It can be an early indicator of the rate of consumer price inflation.
In January, wholesale prices were up 6% from a year ago, compared to a 6.5% year-over-year increase in December and an all-time high of 11.7% in March. It was the eighth consecutive month of decelerating year-over-year wholesale inflation, although it still exceeded expectations.
Removing volatile food and energy prices, so-called core wholesale inflation increased 5.4% annually in January and 0.5% month-over-month. Nonetheless, food costs decreased by 1%, the second consecutive monthly decline. Egg prices, which have risen due to an outbreak of avian influenza, decreased by 12.7% between December and January, but are still up more than 200% from a year ago.
In the energy sector, wholesale prices for gasoline increased 6.2% from December, diesel fuel 10.9%, and natural gas for residential use 12.2%.
Rubeela Farooqi, chief U.S. economist at High Frequency Economics, stated, “While producer prices are down from their peaks, inflation remains elevated and the monthly change in prices moved in the wrong direction in February.” “These data will keep the Fed on track to raise interest rates further, to a sufficiently restrictive stance, in order to return inflation to” the 2% inflation target of the central bank.
This week, the government announced that consumer inflation slowed for the seventh consecutive month compared to the previous year. But, the research also indicated that underlying inflationary forces will likely keep prices elevated long into this year. The January consumer inflation rate of 6.4% remained far over the Fed’s yearly objective of 2%.
Since March of last year, the Federal Reserve has increased its benchmark interest rate eight times in an effort to slow the economy sufficiently to combat excessive inflation. Since reaching a four-decade peak in mid-2022, inflation has, in fact, declined. The rate hikes have had the broader economic effect of increasing the interest rates on mortgages, vehicle loans, and credit cards.
Despite rising interest rates, the labor market has remained remarkably robust. Businesses added 517,000 workers last month, over three times what economists had predicted, and the unemployment rate dropped to its lowest level since 1969, 3.4%.
»Increasing energy costs cause a greater than anticipated increase in wholesale pricing«
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