US Producer Price Index (PPI) data showed a stronger-than-expected increase in inflation, but the core measure of healthcare services inflation, which is closely watched by the Federal Reserve, eased to 2.6% from 2.9%. This moderation in the core PPI component offers some relief for the Fed’s primary inflation rate.
The overall PPI rose 0.4% on the month and 3.5% from a year ago, overshooting forecasts of 0.3% and 3.2%. However, the core CPI rose 0.3% on the month, as expected. The 12-month inflation rate rose to 3.6% vs. the 3.3% Econoday consensus forecast amid some data revisions.
Economists caution that the seasonal adjustment process for inflation can be tricky at the start of the year when companies often raise prices. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, advises waiting until February to draw conclusions on the inflation trend.
The Fed’s focus is on key PPI components that feed into the core PCE price index. The year-over-year decline in health services inflation came as physician prices fell 0.5%, hospital outpatient care prices 0.4% and inpatient care 0.3%. Airline fares also declined due to a strong US dollar.
Despite this moderation, the impact of tariffs on inflation is far from certain. Deutsche Bank economists estimate that Trump tariffs could push the Federal Reserve’s main core inflation rate above 3.5% this year. The steel and aluminum tariffs already in place may add less than one-tenth of a percentage point to the inflation rate.
The S&P 500 rose 0.5% on Thursday morning, ending 1.1% below its January record closing high. Markets now price in a 2.5% chance of a rate cut at the March meeting and 39.5% odds of a rate cut at the June meeting.
Source: https://www.investors.com/news/economy/ppi-cpi-inflation-trump-tariffs-fed-jerome-powell-sp-500