Producer prices and consumer prices both came in hot in January

Wholesale and retail prices rose more than expected in January, data pointing to the stubbornness of inflation that could lead the Federal Reserve to put off cuts to interest rates.

The producer price index (PPI), which measures how much businesses pay to each other for goods and services, rose 0.3 percent in January, above expectations of 0.1 percent. 

Service prices increased 0.6 percent on the month while goods prices decreased by 0.2 percent. Annually, wholesale prices were 3.7 percent lower in January than they were in January 2023.

The cored index with more volatile prices of food and energy stripped out rose 0.6 percent, the largest advance in a year, the Labor Department noted.

U.S stocks fell on Friday morning as investors weighed the data. The numbers pointed to the difficulty the Fed faces in getting inflation to a 2 percent annual rate of increase.

Markets have been hoping for interest rate cuts by the Fed later this year, but the new data would seem to make this less likely.

“This PPI print further highlights that getting inflation back to the Fed's 2 percent target isn't just a walk in the park,” Ken Tjonasam, a strategist at investment company Global X, wrote in a commentary. “For Chair Powell and the Fed, this means recalibrating their lens on the economic landscape. The narrative of easing into a rate cut has just hit a snag.”

The CME Fedwatch prediction algorithm put the chances of a Fed rate cut at just 8.5 percent for its next meeting in mid March.

The upside surprise in wholesale prices mirrors the January move in retail prices, with the consumer price index (CPI) also having risen 0.3 percent on the month, higher than a 0.2 percent forecast.

Consumer prices have fallen to a 3.1 percent annual increase from a high of around 9 percent in the middle of 2022. Producer prices, which go up and down in bigger movements than their consumer counterparts, have dropped to a 3.7 percent annual decrease from a 22 percent increase in the middle of 2022.