Wholesale Inflation Came in Hotter Than Forecast, Disappointing Investors and Policymakers Hoping for Cooling Price Pressures

The Producer Price Index (PPI) rose 0.4% in January versus economist forecasts for 0.3% and 0.2% in December.

Headline inflation at the wholesale level in the United States rose more quickly than anticipated in January, providing further evidence of persistent price pressures that might postpone plans by the Federal Reserve to begin cutting interest rates later this year.

The Labor Department said on Friday that its Producer Price Index (PPI) for final demand increased 0.4% last month. Economists polled by Econoday had expected a 0.3% rise. The PPI increased by 0.2% in December.

In the 12 months through January, the PPI advanced 3.5%. That was a touch lower than the 3.6% year-over-year increase in December but higher than economists' forecasts for a 3.2% rise.

Excluding the volatile food and energy components, core PPI rose 0.3% in January. Economists had forecast a 0.3% increase after a 0% rise in December.

Core PPI increased by 3.6% year-over-year in January, compared with economists' expectations for a 3.3% rise. The core PPI increased by 3.7% year-over-year in December.

Economists closely monitor the PPI figures for early indications of future trends in consumer inflation, as measured by the Consumer Price Index (CPI).

On Thursday, the Labor Department said the CPI increased by 0.7% in January, above economists' expectations and marking the biggest gain since June. In the 12 months through January, the CPI increased by 6.3%.

Testifying before Congress on Friday following the fast inflation report, Federal Reserve Chair Jerome Powell said there is “more work to be done” on the inflation front.

The PPI number took on even greater significance as Powell said he would be interested in seeing if today's number confirmed the disappointing CPI data.

After cutting rates 100 basis points in the final months of 2024, Powell and the rest of the Fed have made clear their intent to pause any further monetary ease until there's a notable slowdown in the economy and/or inflation.

Before the PPI figure was published, markets had priced in only one rate cut for all of 2025, according to the CME Fed Watch Tool.

The central bank is expected to raise its benchmark overnight lending rate by a quarter point at the conclusion of its two-day policy meeting on March 21.