US inflation resilience remains! January PPI jumps higher than expected, potential for Fed rate cuts may be hindered

In January, the producer price in the United States rose higher than expected, mainly driven by the service sector, indicating that inflation pressures continue to exist. The Labor Department reported on Friday that the Producer Price Index (PPI) rose by 0.5%, the largest increase since September of last year. The previous month's increase in December was revised to 0.4%. Excluding food and energy, the core index showed the largest increase since July of last year. The continued strong readings of wholesale prices for several months further confirm the slow progress in curbing inflation. The imposition of higher tariffs on imported materials has prompted many manufacturers to raise prices or seek other cost-saving measures to protect profit margins. Excluding food and energy, the increase in commodity prices in January was one of the largest since early 2022. After the data was released, stock futures further declined, while US bond yields narrowed. Economists and investors closely track PPI data because its various components are included in the inflation measurement index preferred by the Federal Reserve - the Personal Consumption Expenditures Price Index. Among the components used to compile the PCE price index, fees for portfolio management, airfare prices, and doctor care service fees all showed significant increases. The US Bureau of Economic Analysis is scheduled to release January PCE price data, as well as income and expenditure data on March 13. Although tariffs have created some upward pressure on consumer prices, overall companies have not significantly raised prices as economists had feared. Data released earlier this month showed that a key inflation indicator in January was quite moderate, dispelling concerns in the market of larger increases. Due to the slow progress in achieving the Fed's 2% inflation target, along with recent signs of stability in the labor market, central bank officials are not eager to lower interest rates again after three consecutive rate cuts at the end of last year.