U.S. Producer Prices Surprise to Upside in January

The Producer Price Index for Final Demand rebounded sharply in January, increasing 0.7% m/m following an upwardly revised 0.2% monthly decline in December (initially -0.5% m/m). The Action Economics Forecast Survey had expected a 0.4% m/m increase. The y/y rate of advance continued to moderate, slowing to 6.0% y/y in January from an upwardly revised 6.5% in December (initially 6.2% y/y) and a recent peak of 11.7% last March. This release was not received well by financial markets as it challenged the widely held view that the Fed would soon conclude its interest rate hikes.

The PPI less food, energy and trade services jumped up 0.6% m/m in January following an upwardly revised 0.2% m/m gain in December (initially 0.1% m/m). Expectations were for a 0.3% m/m increase. The y/y rate also slowed to 4.5% y/y in January from an upwardly revised 4.7% in December (initially 4.6%) and a recent peak of 7.1% in March 2022. The PPI excluding just food and energy prices rose 0.5% last month, also well above expectations, with the y/y rate slowing to 5.4% from an upwardly revised 5.8% in December (previously 5.5% y/y).

The January rebound was led by a 5.0% m/m surge in final demand energy prices following monthly declines in both November and December. This pushed up final demand goods prices 1.2% m/m in January following a 1.4% m/m decline in December with the y/y rate slowing to 7.5% from 7.9%. Nearly one-third of the January rise in final demand goods prices could be traced to prices for gasoline, which increased 6.2% m/m. By contrast, prices of final demand foods fell 1.0% m/m, their second consecutive monthly decline, led by a 33.5% drop in prices for fresh and dried vegetables. Final demand goods prices excluding foods and energy increased 0.6% m/m in January, their largest monthly gain eight months.

Final demand services prices increased 0.4% m/m in January, the same monthly rise as in December. The y/y rate slowed to 5.0% in January, its slowest since April 2021, from 5.4% in December. Over 80% of the broad-based increase in services prices in January was attributable to prices for final demand services less trade, transportation, and warehousing, which rose 0.6% m/m. Margins for final demand trade services rose 0.2% m/m, down from an 0.8% monthly increase in December.

Construction product prices jumped up 1.6% m/m (+16.6% y/y) in January after having been unchanged in December. Construction product prices for private capital investment surged 1.7% m/m while government construction costs jumped up 1.6% m/m.

Intermediate goods prices rebounded in January, rising 1.0% m/m after six consecutive monthly declines. Processed food prices increased 0.3% m/m, their second increase in the past three months. Processed energy goods prices rebounded, rising 5.4% m/m in January after having plunged 10.3% m/m in December.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s USECON database. Further detail is contained in PPI and PPIR. The expectations figures are available in the AS1REPNA database.