Investing.com - Headline U.S. producer prices increased at a hotter-than-anticipated pace in January, in the latest sign of lingering inflationary pressures that are likely to dent bets for possible Federal Reserve interest rate cuts this year.
Recent indications of sticky inflation, particularly consumer price data released on Wednesday, have weighed on expectations that the U.S. central bank will resume a series of rate reductions it paused last month. Fed officials have argued that a wait-and-see approach to future policy decisions is warranted due in part to price growth remaining above their 2% target level, as well as broader resilience in the American economy.
The producer price index (PPI) for final demand rose 0.4% on a month-on-month basis, slowing from an upwardly-revised mark of 0.5% in December, data from the Labor Department showed on Thursday. Economists had predicted a PPI reading of 0.3%.
In the twelve months through January, the PPI grew by 3.5%, compared with 3.5% in the preceding month and expectations of 3.2%.
Stripping out volatile items like food and fuel, so-called core PPI came in at 0.3% at a monthly rate, in line with estimates. The December figure was revised upward to 0.4% from a prior mark of 0.0%. Year-on-year, core PPI stood at 3.6% versus 3.7% in December and projections of 3.3%.
Analysts noted, however, that the details of the report included some potentially dovish signals for investors worried by higher-for-longer interest rates, including a cooldown in the personal consumption section of the PPI to 0.3% from 0.7% in December. U.S. stock futures edged higher in the wake of the PPI data, while 2-year and 10-year Treasury yields dipped. The U.S. dollar index, which measures the greenback against a basket of major currency pairs, was also lower.
In a note to clients, Paul Ashworth, Chief North America Economist at Capital Economics, said the components that feed into the Fed’s preferred personal consumption expenditures (PCE) price measure were, "on the whole, very tame."
However, Ashworth flagged that, with widespread tariffs from U.S. President Donald Trump likely coming, core PCE is likely to end 2025 well above 2%, "making it unlikely that the Fed will resume cutting interest rates any time soon."