Wholesale Inflation Unexpectedly Rises at Fastest Pace in 3 Months

Producer inflation unexpectedly rose in December at its fastest pace in three months, according to new data from the Bureau of Labor Statistics released on Jan. 30.

The December Producer Price Index (PPI) rose 0.5 percent, from the previous month’s 0.2 percent.

This came in firmly above the market consensus of 0.2 percent.

Wholesale inflation measures the prices businesses pay for goods and services, which are later passed on to consumers.

Economists use the PPI as a precursor to future inflation trends.

Core producer inflation, which strips out volatile energy and food prices, also soared 0.7 percent, up from a flat reading in November.

The core reading came in above the market estimate of 0.2 percent.

On a 12-month basis, headline PPI was unchanged at a higher-than-expected 3 percent.

Core PPI ticked up to 3.3 percent year-over-year—also higher than forecasts—from the upwardly adjusted 3.1 percent in November.

Officials traced the sizable price increases to services, rising 0.7 percent. This was mostly driven by final demand trade services and machinery and equipment wholesaling.

The goods portion of the PPI was flat last month following a 0.8 percent spike in November.

The indexes for nonferrous metals, residential natural gas, motor vehicles, aircraft and aircraft equipment, and soft drinks rose.

But these were offset by declines in prices for diesel fuel, jet fuel, gasoline, beef and veal, and iron and steel scrap.

Producer inflation excluding food, energy, and trade edged up just 0.4 percent.

Cumulatively, the PPI rose about 2.2 percent last year.

State of Inflation

In December, the annual inflation rate held steady at 2.7 percent, and core inflation came in at 2.6 percent.

Looking ahead, the 12-month rate of inflation is expected slow to 2.4 percent, according to the Cleveland Federal Reserve.

But private-sector alternatives suggest inflation is firmly below the Federal Reserve’s 2 percent target.

The U.S. Truflation Inflation Index—a real-time measure that relies on a treasure trove of goods and services data—is at around 1.2 percent.

That said, because inflation remains sticky and the labor market has not deteriorated further, the Federal Reserve left interest rates unchanged at this month’s policy meeting.

Policymakers voted 10–2 to leave the benchmark federal funds rate at 3.5 percent to 3.75 percent.

“No surprises from the Federal Reserve meeting as they wait for prior rate cuts to work through the economy,” Eric Teal, CIO at Comerica Wealth Management, said in a note emailed to The Epoch Times.

“The unemployment rate has stabilized, and inflation remains sticky with uncertainty lingering around tariff policy,” he continued.

“There is justification for the ‘wait and see’ approach given the potential for a ‘second wave’ of higher prices as the tariff pass-through rate increases.”

Futures market data suggest that investors are not anticipating the first quarter-point interest rate cut until June—one month after Fed Chair Jerome Powell’s term expires.

Additionally, traders are betting on two to three rate cuts this year, compared to the central bank’s forecast of one.

But now that the president has selected former Fed Governor Kevin Warsh as Powell’s replacement, it remains to be seen what he has in store for monetary policy.

Warsh may need to strike a fine balance between adhering to the administration’s economic agenda and soothing market fears about central bank independence.

“Trump, paradoxically, wants a new chair who is sympathetic to his views and also credible to investors,” Christian Hoffman, head of fixed income at Thornburg Investment Management, said in an emailed note to The Epoch Times.

U.S. stocks were firmly in the red following the president’s announcement.