Wholesale inflation in the U.S. surged again last month, rising 9.7% from a year earlier, in a sign that price pressures remain high at all levels of the economy.
The Labor Department said Tuesday that its Producer Price Index — which measures inflation before it reaches consumers — jumped 1% from December. The year-over-year increase was down from the record 9.8% recorded in both November and December but was well above what economists had been expecting. Excluding volatile food and energy prices, wholesale inflation rose 0.8% from December and 8.3% from January 2021.
“The big picture is that inflation has gained momentum and broadened in the economy,” Bill Adams, chief economist for Comerica Bank, said in a note. “The Russia-Ukraine conflict was a factor behind January’s increase in prices. Energy prices rose amid fears that the conflict would slow Russian deliveries of natural gas and oil to global markets. But prices of other goods also rose rapidly in January, as did prices of services.”
Four-decade high
The government reported last week that consumer prices over the past year have soared to their highest level in four decades, squeezing households, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates. The 7.5% increase in the Consumer Price Index ranged across the economy, from food and furniture to apartment rents, airline fares and electricity.
Inflation, under control for four decades, re-emerged as an economic issue last year as the U.S. rebounded with unexpected speed from 2020’s short but devastating coronavirus recession. Caught off guard by the bounce-back, companies scrambled to find supplies and workers to meet an unexpected surge in orders from customers flush with government relief checks. Factories, ports and freight yards came under strain. Shipments were delayed and prices began to rise.
The Labor Department’s January report showed that wholesale goods prices rose 1.3% last month from December and services climbed 0.7%, pulled up by a steep increase in the cost of outpatient hospital services, which jumped 1.6%.
“The latest advance in producer prices was driven by another strong gain in goods prices, but increases in services prices continued to broaden,” economists Mahir Rasheed and Kathy Bostjancic of Oxford Economics wrote in a research report. “The combination of stubborn supply disruptions and elevated energy prices will prevent producer prices from reverting to more normal patterns until later this year.”
Inflation was highest for energy and food — sectors that bode ill for consumers. Wholesale food price rose 12.8% year over year, while energy rose 29.4% in the same time period.
“As food manufacturers face higher costs both for their actual products, as well as their packaging and shipping, it is a sure bet that consumer price inflation for food has a continued run of higher prices in store into mid-2022 as a result,” PNC Economist Kurt Rankin said in a report.
“[T]hose food and energy components are usually the most notable and most difficult to absorb for households,” he added.
Economists expect inflationary pressure to drop this year as supply chain bottlenecks begin to ease and the Federal Reserve begins to push up interest rates. And consumers will not be receiving government relief checks.
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