Producer prices jumped 0.6 percent in January, its fastest monthly pace of growth since September 2012. For manufacturers, producer prices for final demand goods accelerated in the latest report, up 1.0 percent and increasing for the fifth straight month. This largely reflected a significant rise in energy costs, up 4.7 percent. In particular, gasoline prices were up 14.5 percent for producers in January, which was also coincidently the year-over-year growth rate. At the same time, food prices were unchanged in January. Higher costs for dairy products, eggs, grains, pork and shortening and cooking oils were offset by lower prices for beef and veal, chickens, confectionary end products, fish and pasta products, among others. Despite the flat month, food prices have dropped 2.2 percent since January 2016.
Excluding food and energy, final demand goods prices for producers increased by 0.4 percent in January, continuing to accelerate and up for the sixth straight month. Overall, producer prices for final demand goods and services have increased 1.7 percent since January 2016, its highest year-over-year rate since August 2014. Moreover, it represents a notable pickup in inflationary pressures after being unchanged in August. Meanwhile, core producer prices – which exclude food and energy – grew 1.2 percent year-over-year in January, dropping from 1.6 percent in December.
The bottom line is that pricing pressures have continued to accelerate, even as they remain largely in check, at least for now. Core inflation on a year-over-year basis has remained below the Federal Reserve’s stated goal of 2 percent for 32 straight months (since May 2014). Prices are likely to accelerate somewhat moving forward, likely exceeding the two percent threshold in the coming months.
Nonetheless, it should remain in an acceptable range for the Federal Open Market Committee, which continues to balance the need for accommodation in its monetary policy with a desire to normalize rates on the basis of economic progress. Indeed, a short-term rate increase is likely forthcoming, perhaps as soon as its March meeting.