U.S Producer Prices Rise in January

U.S. producer prices accelerated in January, boosted by strong gains in the cost of gasoline and healthcare, offering more evidence that inflation pressures were building up.

The report came on the heels of data on Wednesday showing a broad increase in consumer prices in January. The Labor Department said on Thursday its producer price index for final demand rose 0.4 percent last month after being unchanged in December.

In the 12 months through January, the PPI rose 2.7 percent after advancing 2.6 percent in December. A key gauge of underlying producer price pressures that excludes food, energy and trade services jumped 0.4 percent last month. The so-called core PPI edged up 0.1 percent in December.

It rose 2.5 percent in the 12 months through January, the largest increase since August 2014. The core PPI increased 2.3 percent in the 12 months through December.

The PPI report bolsters expectations that inflation will gain steam this year even though its correlation with consumer prices has weakened.

Economists believe that a tightening labor market, weak dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending will lift inflation toward the Federal Reserve’s 2 percent target this year.

The U.S. central bank’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012.

U.S. financial markets were little moved by the data.

The Fed has forecast three interest rate increases this year, with the first hike expected in March. Most economists are, however, forecasting four rate increases this year because of rising inflation pressures.

FOOD PRICES FALL

Last month, the cost of hospital outpatient care surged 1.0 percent, the largest increase since August 2014, after gaining 0.1 percent in December.

Hospital inpatient care rose 0.3 percent. Overall, the cost of healthcare services shot up 0.7 percent in January. Those costs feed into the core PCE price index.

Wholesale goods prices increased 0.7 percent last month, after nudging up 0.1 percent in December. Gasoline prices, which rose 7.1 percent, accounted for nearly half of the increase in the cost of goods last month.

Wholesale food prices fell for a second straight month, with prices for prepared poultry posting their biggest drop in 14 years and chicken eggs declining by the most since December 2015. Core goods prices rose 0.2 percent for the second consecutive month.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell