Hot Inflation Data and War Fears Rattle Markets
U.S. wholesale inflation ran hotter than expected in January, with the Producer Price Index for core goods surging 0.7%. The data, combined with anxieties over AI's economic impact and the new military conflict in the Middle East, sent stocks tumbling. The Dow dropped 1.1%, marking only the market's second losing month in over a year.
The overall Producer Price Index for final demand actually rose 0.5% in January, a figure driven entirely by the service sector. While core goods inflation was hot, the broader index for goods prices actually fell 0.3%, thanks to a significant drop in energy and food costs. The surge in services costs, which climbed 0.8% overall, was the largest increase since July 2025. This was propelled by a 2.5% jump in trade services, a category that measures the margins received by wholesalers and retailers. Digging deeper, a massive 14.4% surge in margins for professional and commercial equipment wholesaling was a primary contributor. Analysts suggest this reflects businesses passing on the costs of import tariffs to their customers. This hotter-than-expected wholesale inflation report has reinforced expectations that the Federal Reserve will not resume cutting interest rates before its June meeting. The persistence of service sector inflation, in particular, may complicate the central bank's path toward its 2% inflation target.
