Wholesale Inflation Sees Biggest Jump in Two Years
The U.S. Producer Price Index (PPI) for January showed a larger-than-expected increase in wholesale inflation. Core goods, which exclude food and energy, jumped 0.7% — the strongest gain in nearly two years. This hotter-than-expected data is stoking fears about persistent inflation and rattling financial markets.
The headline 0.5% monthly increase was driven largely by a 0.8% surge in prices for services, the biggest jump since July 2025. This overshadowed a 0.3% drop in the prices for goods, which was primarily caused by a 5.5% decline in gasoline costs. A key factor in the services inflation was a 2.5% increase in trade services, which measures the profit margins of wholesalers and retailers. Some analysts suggest this reflects businesses passing on costs from import tariffs to their customers. Within trade services, margins for professional and commercial equipment wholesalers saw a dramatic 14.4% surge. Prices also rose for apparel, footwear, and accessories retailing. The data complicates the Federal Reserve's path forward, reinforcing the central bank's cautious approach to interest rate cuts. Economists now widely expect the Fed to hold rates steady at its March meeting and potentially delay any cuts until June or later. Financial markets reacted swiftly and negatively to the inflation news. The Dow Jones Industrial Average dropped over 500 points, while the S&P 500 and Nasdaq Composite also fell as investors recalibrated their expectations for interest rate relief. Over the past 12 months, the Producer Price Index has increased 2.9%. The core index, which is closely watched by the Fed, rose 3.6% annually, remaining significantly above the central bank's 2% inflation target.
