The Producer Price Index delivered an upside surprise across the board in January, reviving concerns that price pressures remain sticky and complicating the Federal Reserve’s rate-cut timeline.
The Bureau of Labor Statistics reported Friday that headline producer prices rose 0.5% month over month in January, above the 0.3% consensus forecast and accelerating from December’s 0.4% pace.
On a year-over-year basis, the PPI increased 2.9%, well above expectations of 2.6%, though slightly below December’s 3.0%.
Core PPI, which excludes food and energy, jumped 0.8% in January — the highest print since July 2025 — sharply outpacing expectations of 0.3%.
On an annual basis, core producer prices rose 3.6%, again above the 3.0% forecast and up from 3.3% previously.
Services Are The Problem
The producer inflation impulse came from services. Final demand services surged 0.8% in January, the largest gain since July 2025.
More than 20% of that increase came from a 14.4% jump in margins for professional and commercial equipment wholesaling.
Meanwhile, goods prices fell 0.3%, the biggest drop since March 2025. Energy prices declined 2.7%, led by a 5.5% drop in gasoline.
Nearly 80% of the decline in goods came from gasoline.
In other words, inflation cooled where it is volatile. It heated up where it tends to stick.
What It Means For The Fed
Chris Zaccarelli, chief investment officer for Northlight Asset Management, said the report could rattle investors.
“This morning the PPI was higher than expected across the board and that could upset markets,” Zaccarelli said.
Zaccarelli said that over the past month markets had focused heavily on AI disruption and its potential impact on the labor market, pushing inflation concerns into the background, but that the latest inflation readings could give the Fed another reason to remain patient on rate cuts and potentially wait until the second half of the year before making changes.
The expert also said the hotter inflation data adds another layer of concern within the traditional framework of price stability and full employment, even before accounting for AI’s disruptive effects on the broader economy.
Wall Street Heading For A Negative End To The Week
The S&P 500 — as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) — opened 0.8% lower on Friday, heading for a negative weekly close.
The Nasdaq 100 fell 1%, while the Dow Jones Industrial Average slipped 0.9%.
Shares of Nvidia Corp. (NASDAQ:NVDA) sank nearly 2% after a 5.5% drop on Thursday, putting the stock on track for its worst two-day decline since April 2025.
Meanwhile, crude oil jumped 3.7% to around $67 per barrel, hovering near a seven-month-high, as rising tensions involving Iran injected fresh geopolitical risk into energy markets.
Gold gained 0.8% to $5,250 per ounce, extending its recent run of strength. Silver spiked 4.5% to $92.
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