| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.3% | 0.2% to 0.4% | 0.4% | 0.2% | 0.5% |
| PPI-FD - Y/Y | 3.2% | 3.1% to 3.2% | 3.5% | 3.3% | 3.5% |
| Ex-Food & Energy - M/M | 0.3% | 0.2% to 0.4% | 0.3% | 0% | 0.4% |
| Ex-Food & Energy - Y/Y | 3.3% | 3.3% to 3.3% | 3.6% | 3.5% | |
| Ex-Food, Energy & Trade Services - M/M | 0.3% | 0.1% | 0.4% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 3.4% | 3.3% | 3.5% | ||
| PPI-FD Goods - M/M change | 0.6% | 0.6% | 0.5% | ||
| PPI-FD Goods - Y/Y change | 2.3% | 1.8% | |||
| PPI-FD Services - M/M change | 0.3% | 0% | 0.5% | ||
| PPI-FD Services - Y/Y change | 4.1% | 4.0% |
Highlights
U.S. wholesale price inflation as measured by the Producer Price Index for final demand rose in January by 0.4 percent, following a revised 0.5 percent jump in December, and above expectations for a 0.3 percent rise in the Econoday survey of forecasters. Final demand prices advanced 0.2 percent in November and October.
Compared to January 2024, final demand PPI rose 3.5 percent, matching the increase for the 12 months ended in December.
This data point again raises the question of whether progress in the battle against inflation has stalled, and prices are moving in the wrong direction away from the Federal Reserve's 2 percent target. All this before feeling the impact of higher tariffs on steel and aluminum imports, as well as all imports from China.
There was a 0.6-percent jump in prices for final demand goods building on a 0.5 percent rise in December. Prices for final demand services were up 0.3 percent, after a 0.5 percent spike in December.
Food prices rose by 1.1 percent after a 0.4 percent increase in December and have risen by 5.5 percent from January 2024 (compared to +4.7 percent year-over-year in December). Energy prices in January increased by 1.7 percent after jumping 2.2 percent in December but are flat when compared to January 2024 (after prices fell 2 percent on an annual basis in December).
January final demand prices excluding food and energy rose by 0.3 percent, following a 0.4 percent increase in December, and are up 3.6 percent from a year ago after a 3.5 percent rise in December.
Final demand prices excluding foods, energy, and trade services saw a 0.3 percent uptick in December, following a 0.4 percent jump in December, and +0.1 percent in November. For the 12 months ended in January, prices for final demand less foods, energy, and trade services rose 3.4 percent, compared to a 3.5 percent rise on an annual basis in December.
Compared to January 2024, final demand PPI rose 3.5 percent, matching the increase for the 12 months ended in December.
This data point again raises the question of whether progress in the battle against inflation has stalled, and prices are moving in the wrong direction away from the Federal Reserve's 2 percent target. All this before feeling the impact of higher tariffs on steel and aluminum imports, as well as all imports from China.
There was a 0.6-percent jump in prices for final demand goods building on a 0.5 percent rise in December. Prices for final demand services were up 0.3 percent, after a 0.5 percent spike in December.
Food prices rose by 1.1 percent after a 0.4 percent increase in December and have risen by 5.5 percent from January 2024 (compared to +4.7 percent year-over-year in December). Energy prices in January increased by 1.7 percent after jumping 2.2 percent in December but are flat when compared to January 2024 (after prices fell 2 percent on an annual basis in December).
January final demand prices excluding food and energy rose by 0.3 percent, following a 0.4 percent increase in December, and are up 3.6 percent from a year ago after a 3.5 percent rise in December.
Final demand prices excluding foods, energy, and trade services saw a 0.3 percent uptick in December, following a 0.4 percent jump in December, and +0.1 percent in November. For the 12 months ended in January, prices for final demand less foods, energy, and trade services rose 3.4 percent, compared to a 3.5 percent rise on an annual basis in December.
Market Consensus Before Announcement
The consensus sees PPI-FD up 0.3 percent on the month and up 3.2 percent on the year. Ex-food & energy, PPI-FD is also seen up 0.3 percent and up 3.3 percent on the year.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
