US producer prices increased by more than forecast in January

Prices paid to US producers rose in January by more than forecast, fueled by a sizable jump in costs of services and highlighting the sticky nature of inflation. 

The producer price index for final demand increased 0.3% from December, Labor Department data showed Friday. The gauge rose 0.9% from a year earlier, also exceeding forecasts.

The so-called core PPI, which excludes volatile food and energy categories, climbed 0.5% from the prior month, and 2% from a year ago — both topping expectations.

The advance reflected increases in services categories, including hospital outpatient care and portfolio management.

Treasuries extended their selloff following the PPI data. Two-year yields rose to the highest level since mid-December, when the Federal Reserve signaled interest rates had peaked. Traders pared expectations for interest-rate cuts, seeing only a one-in-four chance of a move in May.

Following a separate report this week that showed a jump in the consumer price index at the start of the year, the wholesale-price figures likely reaffirm the view that the Fed will hold off reducing interest rates until officials are convinced inflation is sufficiently tamed.

“The Fed will be concerned by the January CPI and PPI reports,” Bill Adams, chief economist at Comerica Bank, said in a note. “Momentum has built up in inflation over the last few years, and persists in many corners of the economy despite lower prices for gasoline, basic foodstuffs, and durable goods.”

One reason economists at the Fed and on Wall Street parse the PPI report is because several categories are used to inform the Fed’s preferred inflation measure, the personal consumption expenditures price gauge. The January reading of the PCE is due later this month.

Services costs increased 0.6%, the most since July. Prices paid to producers for goods dropped 0.2%, the fourth-straight decrease.

Stripping out food, energy and trade services, which is an even-less-volatile PPI measure, prices also increased 0.6% — the biggest monthly advance in a year.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell for a fourth month in January on a decrease in energy. Excluding food and energy, processed goods for intermediate demand climbed 0.3%, the most since May 2022.

Separate data Friday showed housing starts fell in January to the slowest pace since August.