By Lucia Mutikani
WASHINGTON (Reuters) - U.S. producer prices increased solidly in January, offering more evidence inflation was picking up again and strengthening financial market views that the Federal Reserve would not be cutting interest rates before the second half of the year.
The broad rise in producer inflation reported by the Labor Department on Thursday followed on the heels of news on Wednesday that consumer prices accelerated by the most in nearly 1-1/2 years in January. Economists warned inflation was set to trend even higher as President Donald Trump presses ahead with broad tariffs on imports as well as mass deportations that could cause labor shortages and raise wages and prices of goods.
"The Fed will not see any argument for pushing interest rates lower, sooner, in today's figures," said Carl Weinberg, chief economist at High Frequency Economics. "However, there is no reason to expect the Fed to debate hiking rates in these figures either."
The producer price index for final demand rose 0.4% last month after an upwardly revised 0.5% gain in December, the Labor Department's Bureau of Labor Statistics (BLS) said. Economists polled by Reuters had forecast the PPI rising 0.3%.
In the 12 months through January, the PPI advanced 3.5% after increasing by the same margin in December. With January's PPI report, the BLS updated weights to reflect price movements in 2024, and seasonal adjustment factors, the model that the government uses to iron out seasonal fluctuations from the data.
The rise in the PPI was across goods and services. Wholesale goods prices jumped 0.6% after rising 0.5% in December. More than half of the increase came from a 1.7% jump in energy goods prices. Food prices shot up 1.1%. Excluding food and energy, goods prices edged up 0.1% for a second straight month.
Services increased 0.3% after climbing 0.5% in December. A 5.7% surge in wholesale prices of hotel and motel rooms accounted for more than a third of the increase in services.
There were also increases in wholesale prices of automobile retailing, transportation of freight by road, food and alcohol retailing as well as apparel, jewelry, footwear and accessories retailing and bundled wired telecommunications.
But margins for fuels and lubricants retailing fell 9.8%. Portfolio management fees rose 0.4%, but airline fares decreased 0.3%. Physician care prices declined 0.5% and the cost of hospital inpatient care fell 0.3%.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among the components that go into the calculation of the Personal Consumption Expenditures (PCE) Price Index, excluding food and energy, one of the measures tracked by the Fed for its 2% inflation target.