December wholesale prices up a hot 0.4% as fight against inflation appears to have stalled

WASHINGTON (AP) — U.S. wholesale prices came in hotter than expected last month with progress against inflation appearing to have stalled, further undercutting expectations for lower interest rates this year.

Economists and financial markets fear President Donald Trump’s policies will push inflation higher yet. His tariffs on foreign goods and plans to deport millions of undocumented workers could translate into higher prices and on Thursday, Trump said that he’ll sign an order that increases U.S. tariffs to the rates other countries charge on imports.

The Labor Department reported Thursday that its producer price index — which tracks inflation before it reaches consumers — rose 0.4% from December and 3.5% from January 2024. The monthly increase was down from an upwardly revised 0.5% in December, and the year-over-year uptick matched December's. But forecasters had expected a 0.2% change month over month and 3.2% year over year.

Excluding volatile food and energy prices, so-called core producer prices rose 0.3% last month from December and 3.6% from a year earlier.

Wholesale services prices rose 0.3%, pushed higher by increasing hotel costs. Goods services climbed 0.6% on higher energy prices, including a 10.4% in the price of diesel fuel. Wholesale food prices jumped 1.1% in January as the cost of eggs rocketed up 44%, reflecting the impact of bird flu.

The wholesale price report arrived a day after the Labor Department delivered some bad news about inflation at the consumer level. Its consumer price index rose 3% in January from a year ago, up from a 2.9% year-over-year increase in December.

Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably health care and financial services, flow into the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures, or PCE, index.

Despite the higher-than-expected wholesale price increase, Paul Ashworth of Capital Economics wrote in a commentary, "the components that feed into the Fed’s preferred PCE price measure were, on the whole, very tame,'' including modest changes in some health care prices.

Inflation flared up in early 2021 as the economy rebounded with unexpected strength from COVID-19 lockdowns, overwhelming factories, ports and freight yards and leading to shortages, delays and higher prices.

In response, the Federal Reserve raised its benchmark interest rate — the fed funds rate — 11 times in 2022 and 2023. Inflation began tumbling — from a four-decade high 9.1% in June 2022 to a low of 2.4% in September, tantalizingly close to the central bank's 2% target. The Fed was satisfied enough to reverse course and cut its rate three times in the last four months of 2024.

Then the improvement on inflation stopped. Year-over-year consumer price inflation has now risen for four straight months.

In response to stubborn inflation, the Fed may hold off on further rate cuts. Back in December, it signaled that it expected to cut two more times in 2025. That seems far less likely now. Wall Street investors anticipate only rate cut this year and don't expect that one until October.