Summary: US producer price index (PPI) up 1.0% in January, double 0.5% expected; annual rate eases from 10.0% to 9.8%; “core” PPI also up 1.0%; jump in goods, services components a “big surprise”; not yet at peak but “still good reasons” easing coming.
Around the end of 2018, the annual inflation rate of the US producer price index (PPI) began a downtrend which continued through 2019. Months in which producer prices increased suggested the trend may have been coming to an end, only for it to continue, culminating in a plunge in April 2020. Figures returned to “normal” towards the end of that year but recent months’ annual rates have been well above the long-term average.
The latest figures published by the Bureau of Labor Statistics indicate producer prices rose by 1.0% after seasonal adjustments in January. The increase was double the 0.5% rise which had been generally expected and significantly more than December’s revised figure of 0.4%. However, on a 12-month basis, the rate of producer price inflation after seasonal adjustments eased from December’s revised rate of 10.0% to 9.8%.
Producer prices excluding foods and energy, or “core” PPI, also rose by 1.0% after seasonal adjustments. The annual rate accelerated from December’s revised rate of 6.5% to 7.2%. (Note “core” PPI in previous reports referred to prices excluding foods, energy and trade services.)
“Rising food and energy prices lifted the headline PPI, but the big surprise was the uptick in the core reading from the jump in both the goods and services components, up 0.8% and 0.7% respectively,” said NAB currency strategist Rodrigo Catril. He pointed to a 1.1% rise in capital equipment prices and “big jumps” in hospital charges as important factors behind the increases.
Long-term US Treasury bond yields rose noticeably on the day. By the close of business, the 10-year Treasury yield had gained 6bps to 2.06% and the 30-year yield had added 7bps to 2.37%. The 2-year yield finished unchanged at 1.58%.
“For now, the narrative is that price pressures have not yet peaked, although there are still good reasons to expect an ease in pressures come April or May and for the remainder of 2022,” Catril added.
The producer price index (PPI) is a measure of prices received by producers for domestically produced goods, services and construction. It is put together in a fashion similar to the consumer price index (CPI) except it measures prices received from the producer’s perspective rather than from the perspective of a retailer or a consumer. It is another one of the various measures of inflation tracked by the US Fed, along with core personal consumption expenditure (PCE) price data.