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The numbers: U.S. wholesale prices jumped 1% in January and showed there’s still plenty of inflation engulfing an economy facing its worst cost pressures in four decades.
The uptick in wholesale prices blew past investor expectations and was the largest gain in a year. Wall Street economists had forecast a 0.5% increase.
“‘[I]t has become increasingly evident by the day that the central bank made an egregious error in staying so easy for so long.””
Wholesale prices reflect what businesses pay for supplies such as grains, metals, lumber, packaging, computer chips and so forth.
When companies pay higher prices, the cost is often passed onto customers and contributes to inflation. Americans are paying sharply higher prices now than they were a year ago for most staples.
The increase in wholesale prices over the past year, meanwhile, slowed a tick to 9.7% from 9.8%.
Still, that’s the biggest advance in the index was configured in 2009 and one of the fastest rates since the early 1980s.
Big picture: Inflation is running rampant and the Federal Reserve is preparing to embark on a series of interest-rate increases starting in March to try to douse price pressures.
American households are paying 7.5% more for goods and services now compared to one year ago, a survey of consumer prices showed last week. While inflation is likely to subside later in the year, many economists doubt it will fall below 3%.
Before the pandemic, inflation had been rising an average of 1.5% a year.
Key details: The cost of wholesale goods soared 1.3% last month, driven by increases in food, gasoline, new cars, beef and dairy.
The cost of services rose 0.7% last month. Prices rose for hospital care amid an omicron wave. The cost of package delivery, hotel rentals and financial planning also increased.
Price advances in January were broad based.
A separate measure of wholesale prices that strips out the most volatile goods and services rose 0.9% last month, the government said Tuesday. That was also well above Wall Street expectations.
The Fed usually views core price changes as a more accurate barometer of inflation, but they are flashing the same warning signs. The increase in the so-called core rate over the past year slipped a notch to 6.9% from 7%, but it’s still exceedingly high.
The rate of price increases at earlier stages of production was a mixed bag.
The cost of partly finished goods climbed 1.7% after declining slightly in December.
The only bit of goods news in the report was a 2% drop in the cost of raw materials. They fell for the second month in a row for the first time since last summer.
It could be a sign inflationary pressures in the U.S. are finally starting to abate, but it would take several more declines to show the trend is real. The dropoff last June and July only turned out to be temporary.
Looking ahead: “In short, inflation is everywhere and it seems to be gathering both breadth and momentum. That suggests that the price hikes we are seeing may have some staying power,” said chief economist Stephen Stanley of Amherst Pierpont Securities.
“[The Fed] needs to have their hair on fire, because it has become increasingly evident by the day that the central bank made an egregious error in staying so easy for so long.”
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Tuesday trades. Stocks have fallen recently on worries about the Fed raising interest rates to combat high inflation and the possibility of war in Ukraine.
