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U.S. Producer Prices Rise More Than Expected in January, Highlighting Persistent Inflation

Data from the Labor Department indicates that prices paid to U.S. producers in January rose more than anticipated, primarily due to a significant increase in service costs. The Producer Price Index (PPI) for final demand increased by 0.3% from December, surpassing the expected 0.1% rise. On a year-over-year basis, the gauge recorded a 0.9% increase, exceeding the anticipated 0.6%. The core PPI, which excludes the volatile food and energy sectors, climbed by 0.5% from the previous month and by 2% from the same period last year, both figures outstripping expectations.

The primary driver of this rise was the increase in service categories, including hospital outpatient care and portfolio management. Service costs experienced a 0.6% increase, marking the most significant rise since July. Conversely, prices paid to producers for goods fell by 0.2%, continuing a four-month trend of declines. Excluding food, energy, and trade services, which provides an even more stable measure of the PPI, prices rose by 0.6% — the largest monthly increase in a year.

Our Take: This latest inflation report supports the view that an early Federal Reserve rate cut could be risky, given that inflation remains persistent. Alongside with the latest Consumer Price Index (CPI) release, the data should further temper expectations for rate cuts and could negatively impact long-term rates while providing mild support to the USD.


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