Inflation nation: US wholesale prices are still running hot

Inflation is running hotter than expected in the world’s largest economy.

The United States Department of Labor said on Tuesday that the producer price index (PPI) – which measures wholesale inflation in the US – increased 9.7 percent compared to a year ago.

That was well above analysts’ estimates and signals that price pressures are continuing to bear down on businesses.

On a monthly basis, producer prices jumped 1 percent in January after rising 0.4 percent in December. Prices for wholesale goods accelerated 1.3 percent, after falling in December. But services are steadily catching up, with prices accelerating 0.7 percent last month.

“The latest advance in producer prices was driven by another strong gain in goods prices, but increases in services prices continued to broaden,” said Kathy Bostjancic, chief US financial economist for Oxford Economics.

Prices for hospital outpatient care, which rose 1.6 percent last month, were a major contributor to accelerating services prices.

Stripped of volatile food and energy, the so-called “core” PPI rose 0.9 percent In January – the largest monthly increase since January 2021. Over the last 12 months, core PPI rose 6.9 percent.

Prices for goods and services have been blowing past the US Federal Reserve’s target inflation rate since last year, as supply chain snarls and shortages of raw materials and labour raise input costs for businesses.

Firms in turn are passing at least a portion of those higher costs on to consumers – a pattern reflected in the consumer price index (CPI), which accelerated at its fastest pace in 40 years last month.

Price increases are especially tough on lower-income households because they consume a larger portion of their financial resources.

Economists over at Moody’s Analytics estimate that annual inflation is costing the average US household $250 a month based on December’s CPI figures.

To place that burden into perspective – some 36 percent of Americans do not have enough cash or cash equivalents to cover a $400 emergency expense, such as a car repair or medical bill, according to the US Federal Reserve.

The Fed has signalled that it is poised to start raising interest rates when it meets next month to help contain inflation.

Some Wall Street economists, meanwhile, are forecasting an aggressive tightening cycle is in the cards.

This week, economists at Goldman Sachs said they see the Fed hiking rates seven times this year.