A new report on wholesale inflation found producer prices increasing in January. Combined with a rise in consumer prices in January, analysts said the likelihood of Federal Reserve interest rate cuts coming in the spring has lessened.
Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, said, “Two strong inflation reports show why the Fed is going to need to move much more slowly to cut interest rates.”
The producer price index (PPI), a measure of the prices that companies get for finished goods in the marketplace, rose 0.3% in January after prices fell 0.2% in December. The monthly increase was the index’s largest since August 2023 and tripled analysts’ expectations.
Excluding food and energy, core PPI increased 0.5%, much higher than expectations for a 0.1% gain. On a 12-month basis, the headline PPI increased just 0.9%, slightly lower than the 1% level in December. However, excluding food, energy and trade services, the index rose 2.6%.
Goods inputs fell from the previous month in three of the four supply-chain stages.
Stage 4 goods inputs, measuring the products purchased by industries primarily producing output sold to final demand, such as RV manufacturers, fell 0.2% in January after being flat in December. Overall, Stage 4 intermediate demand rose 1.5% in January.
Goods inputs for Stage 3 intermediate demand, measuring suppliers to Stage 4 producers such as RV manufacturers, fell 0.3% in January after a revised 1.6% decline in December. Overall, year-over-year Stage 3 demand fell 2.6% year-over-year. January marked the 11th consecutive month of year-over-year price decreases.
Goods inputs for Stage 2 intermediate demand, measuring suppliers to Stage 3 suppliers, rose 0.6% in January after a revised 3.8% decline in December. Despite the monthly increase, overall, Stage 2 intermediate demand dropped 3.8% year-over-year after a 5.5% decrease in December.
Finally, goods inputs for Stage 1 demand fell 0.3% in January after a revised 0.7% decline in December. Overall, demand declined 0.7% year-over-year. January marked the 10th consecutive month of year-over-year declines.
