When companies that produce goods have to pay more for their materials, eventually they must charge more for their end products. That’s where we feel inflation, and it could be just around the corner.
The producer price index for final demand jumped 1.3% last month, the biggest gain since December 2009 when the government revamped the series, the Labor Department said on Wednesday. That followed a 0.3% rise in December. In the 12 months through January, the PPI accelerated 1.7% after rising 0.8% in December.
A 1.3% rise in the prices of services accounted for two-thirds of the increase in the PPI. That was the biggest gain since December 2009 and followed a 0.1% drop in December.
The cost of goods surged 1.4% after gaining 1.0% in December. Economists polled by Reuters had forecast the PPI would rise 0.4% in January and gain 0.9% on a year-on-year basis.
If Congress passes President Biden’s $1.9 trillion relief package, it could be adding more fuel to the financial fire, giving consumers and businesses more free money to spend and driving prices up.
Federal Reserve Chair Jerome Powell doesn’t think this will happen. He said last week that he expected the rise in price pressures would be transitory, citing three decades of lower and stable inflation.
But if he’s wrong, what will he say? Sorry? We’ll be stuck with higher prices.
Wholesale energy prices surged 5.1% after rising 4.9% in December. Food prices gained 0.2%. Core goods prices increased 0.8%. A 1.4% jump in prices for final demand services less trade, transportation, and warehousing accounted for more than 70% of the increase in services last month.
Healthcare costs accelerated 1.2%, while portfolio fees soared 9.4%. Those healthcare and portfolio management costs feed into the core PCE price index.