US Economy Preview: Wholesale Prices Surge Amid Hot Inflation

Producer price index jumps 1% in January. Wholesale prices of most goods and services, including beef, have risen sharply in the past year to drive the biggest increase in inflation in decades.

US 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.

Suppliers sharply boosted prices last month, in a sign upward pressure on already high consumer inflation continued to build at the start of the year.

The Labour Department on Tuesday said the producer-price index, which generally reflects supply conditions in the economy, rose a seasonally adjusted 1% in January from the prior month, the sharpest rise since May 2021 and a pickup from December’s revised 0.4% rise.

The gains reflect pandemic-related disruptions from the Omicron variant of Covid-19 at the start of the year and continued strength in consumer demand, economists said.

Wholesale inflation in the United States surged again last month, rising 9.7% from a year earlier in a sign that price pressures remain high at all levels of the economy.

Excluding volatile food and energy prices, wholesale inflation rose 0.8% from December and 8.3% from January 2021. Last week, the US government reported that inflation at the consumer level soared over the past year at its highest rate in four decades, squeezing households, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates.

The 7.5% price surge ranged across the economy, from food and furniture to apartment rents, airline fares and electricity. Inflation, under control for four decades, re-emerged as an economic issue last year as the United States rebounded with unexpected speed from 2020’s short but devastating coronavirus recession.

Caught off guard by the bounce-back, companies scrambled to find supplies and workers to meet an unexpected surge in orders from customers flush with government relief checks. Factories, ports and freight yards came under strain. Shipments were delayed and prices began to rise.

The Labour Department report showed that wholesale goods prices rose 1.3% last month from December and services climbed 0.7%, pulled up by a steep increase in the cost of outpatient hospital services.

The latest advance in producer prices was driven by another strong gain in goods prices, but increases in services prices continued to broaden. The combination of stubborn supply disruptions and elevated energy prices will prevent producer prices from reverting to more normal patterns until later this year.

Economists expect inflationary pressure to drop this year as supply chain bottlenecks begin to ease and the Federal Reserve begins to push up interest rates. And consumers will not be receiving government relief checks.