By Andrew Moran

A key pipeline inflation indicator unexpectedly increased in January, potentially signaling higher consumer prices in the coming months.

The January producer price index (PPI) rose 0.5 percent from 0.4 percent in December, according to new data from the Bureau of Labor Statistics released on Feb. 27.

The PPI is a measure of prices businesses pay for goods and services, and is eventually passed on to consumers.

Economists had penciled in a reading of 0.3 percent.

Core wholesale inflation, which excludes volatile energy and food categories, rose by 0.8 percent from the previous month’s 0.6 percent increase. The consensus estimate was 0.3 percent.

Economic observers have been paying closer attention to the PPI as it can serve as a proxy for future consumer inflation trends since it is early in the supply chain.

The bureau said last month’s jump was driven primarily by services, which climbed 0.8 percent—the largest increase since July 2025. Most of this jump was fueled by final demand trade services, with margins for professional and commercial equipment wholesaling accounting for a fifth.

Federal Reserve officials emphasize services more because they can typically indicate the general trend of future overall inflation. The latest figures could suggest the central bank may still have to contend with high prices in the broader economy.

Conversely, goods prices declined by 0.3 percent, the biggest drop since March 2025. The bureau said 80 percent of the decrease can be attributed to gasoline, which fell 5.5 percent. Additionally, prices for chicken eggs, electric power, ethanol, and fresh fruits fell.

The PPI excluding food, energy, and trade services edged up just 0.3 percent.

On a 12-month basis, headline producer inflation eased to 2.9 percent, higher than the market estimate. Core wholesale inflation also rose to a higher-than-expected 3.6 percent.

Consumer inflation has been softening recently.

January’s annual inflation rate in the consumer price index slowed to 2.4 percent. This was down from 2.7 percent and came in below the market estimate of 2.5 percent.

The Cleveland Fed’s Inflation Nowcasting Model also suggests the February reading could hold steady at 2.4 percent.

Caution Ahead

Elevated pipeline price pressures could keep the Federal Reserve reluctant to lower interest rates anytime soon.

Futures market data suggest investors overwhelmingly expect the Fed to leave rates unchanged at the March policy meeting. Traders do not expect the quarter-point policy action until June or July.

U.S. stocks reacted negatively to the PPI data as it could force the Fed to keep the benchmark federal funds rate—currently in a range of 3.5 percent to 3.75 percent—steady.

The blue-chip Dow Jones Industrial Average fell by about 500 points, or 1 percent. The tech-heavy Nasdaq Composite Index also shed more than 200 points, or 0.9 percent. The broader S&P 500 slipped 0.8 percent.

Inflation has been under the radar lately, with the focus on artificial intelligence (AI), said Chris Zaccarelli, CIO at Northlight Asset Management.

“But this morning’s inflation readings could give the Fed another reason to be more patient with rate cuts and wait until the second half of the year before making any changes,” Zaccarelli said in a note emailed to The Epoch Times.

“Regardless of whether we see better-than-expected earnings, more tame inflation or a resilient labor market, people have been selling first and asking questions later.”

A growing chorus of monetary policymakers has expressed reservations about lowering the benchmark policy rate, arguing that elevated inflation should force the Fed to stay the course.

Chicago Fed President Austan Goolsbee said earlier this week that it would not be “prudent” to follow through on any more rate cuts until there is further evidence that inflation is inching back toward the institution’s 2 percent target.

“I feel that front-loading too many rate cuts is not prudent in that circumstance,” Goolsbee said at a National Association for Business Economics event on Feb. 24.

“People express that prices are one of their most pressing concerns. Let’s pay attention. Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2 percent.”

Fed Governor Christopher Waller, who has been an advocate of cutting rates, suggested that if the February employment data surprises to the upside again, it would be better to postpone rate reductions.

Waller called March’s decision a “coin flip.”

“I can’t dismiss the possibility that the labor market data has pivoted to a more solid footing,” Waller said in a Feb. 23 speech.

“As we get more data, I will be able to decipher which of these cases we are in and can then be more deliberate in my decision on the appropriate setting of policy.”

In January, the economy created 130,000 new jobs, and the unemployment rate dipped to 4.3 percent.

Next week, the February jobs report will be published, and the early consensus estimate suggests 60,000 payroll additions.