A Hot January for Wholesale Inflation as the PPI Jumps 1.4%
The 12-month PPI rate shows that inflation is beginning to elevate at the producer level, where prices have now risen 4.6% in the past year. However, the more-telling core rate shows more-modest inflation: It rose just 1% in the past 12 months -- or well within the U.S. Federal Reserve's comfort zone for inflation. In other words, except for food and energy, there was little inflation at the wholesale level in the past year.
In January, wholesale energy prices soared 5.1%, including an 11.5% surge in gasoline prices. Food prices rose 0.4%, and capital goods increased 0.3%.
Although most of January's PPI increase is related to the rise in food and energy prices, it's something the Fed will take note of, particularly if energy prices don't retreat. That's because higher energy costs can feed into the system and force up prices in other goods and services. If producer price inflation continues to heat up, the Fed may have to raise interest rates by the end of the second quarter.