Wholesale inflation accelerates more than expected in January

Inflation at the wholesale level rose much more than expected in January, underscoring the challenge of taming price pressures within the economy. 

The Labor Department said Friday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, jumped 0.3% in January from the previous month. On an annual basis, prices remain up 0.9%.

Those figures are both higher than the 0.1% monthly gain and the 0.6% annual figure predicted by Refinitiv economists.

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In another sign that points to the stickiness of high inflation, core prices – which exclude the more volatile measurements of food and energy – surged 0.5% for the month. That is higher than both the 0.1% estimate and the flat reading recorded last month. 

The figure was up 2% on a 12-month basis.

The data comes three days after the Labor Department said the more closely watched consumer price index, which measures the prices paid directly by consumers, rose 0.3% in January from the previous month and 3.1% from the same time last year, far faster than economists anticipated.  

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Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers. The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.

The Fed has signaled it is closely watching for evidence inflation is continuing to subside as policymakers try to determine what comes next for interest rates in 2024. 

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Central bank officials have opened the door to cutting interest rates this year, but they have pushed back against the market's aggressive expectations. Chair Jerome Powell said during the Fed's most recent meeting that a March rate cut is likely off the table as policymakers do not have enough confidence that inflation is on the path back to 2%.

"This morning’s PPI report only further muddies the waters, because two strong inflation reports, CPI and PPI, show why the Fed is going to need to move much more slowly to cut interest rates," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.