Producer prices and consumer prices both came in hot in January

Wholesale and retail prices rose more than expected in January, with data showing stubborn inflation and the Federal Reserve potentially holding off on cutting interest rates.

The producer price index (PPI), which measures how much businesses pay each other for goods and services, rose 0.3% in January, beating expectations of 0.1%.

Service prices rose 0.6% from the previous month, while goods prices fell 0.2%. Annually, wholesale prices in January were 3.7% lower than in January 2023.

The Labor Department said the core index, which excludes the more volatile prices of food and energy, rose 0.6%, the largest increase in a year.

U.S. stocks fell on Friday morning as investors focused on data. This number shows that the Fed will have difficulty getting inflation to reach a 2% annual rate of increase.

Markets had been hoping the Fed would lower rates before the end of the year, but new data makes that unlikely.

“The PPI results further highlight that returning inflation to the Fed’s 2% goal is not just a theoretical proposition,” Kenneth Chonatham, a strategist at investment firm Global X, said in a commentary. Stated. “For Chairman Powell and the Fed, this means a recalibration of the lens on economic conditions. The narrative of easing interest rate cuts has reached a dead end.”

According to CME FedWatch’s predictive algorithm, there is only an 8.5% chance that the Fed will cut rates at its next meeting in mid-March.

The unexpected rise in wholesale prices mirrored the January movement in retail prices, with the consumer price index (CPI) also rising 0.3% in the month, higher than the expected 0.2%.

Consumer prices have declined from a peak of around 9% in mid-2022 to an annual growth rate of 3.1%. Producer prices rise and fall with greater fluctuations than consumer prices, but the annual rate of increase in mid-2022 had fallen to 3.7%. By mid-2022, it will increase by 22%.