US producer prices outpace forecasts, some see peak in core inflation soon

Wholesale price inflation in the US continued rising at a brisk pace last month amid big gains both at the headline and core level.

According to the Department of Labor, in seasonally adjusted terms, so-called final demand inflation jumped at a month-on-month pace of 1.0% in January, doubling the consensus forecast.

Food and energy prices rose at a clip of 1.6% and 2.5% on the month, respectively, pushing final demand goods inflation up by 1.6%.

Final demand services prices meanwhile increased by 0.7%.

Year-on-year, final demand price gains ebbed from 9.8% in December to 9.7% in January.

All told, core producer prices were up by 0.8% on the month (consensus: 0.5%).

Commenting on the latest figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, highlighted how both goods' and services' prices pushed inflation up.

In particular, he called attention to a 1.1% jump in capital equipment prices, which marked the fastest rate of increase for 41 years and the 1.2% rise in in- and out-patient charges, which was more than four times the recent trend.

Shepherdson linked the latter to a 2.5% uplift in Medicare reimbursement rates announced in 2021, which he believed meant that a further outsized increase was possible.

"Overall, this is a disappointing report, but we remain of the view that core inflation is close to peaking and will be much lower by the end of this year as supply pressures ease and some of the huge increase in margins in some sectors is reversed by a return to more normal market conditions."

Separately, the Federal Reserve Bank of New York reported that its regional manufacturing index improved from a reading of -0.7 for January to 3.1 in February (consensus: 12.0).

Shepherdson said he had "hoped for better" but noted how the sub-index tracking expectations for capital expectations six months out remained at an "elevated" 37.8 points.

"The Empire State survey covers only New York state, but the capex index is a decent guide to future business investment across the whole country, so this is encouraging."