A day on from a disconcertingly warm CPI report which prompted traders to price out one of the only two remaining 2025 Fed cuts in the forward curve, US wholesale prices likewise overshot.
Headline PPI growth ran 0.4% in January, the BLS said, warmer than the 0.3% consensus. The range of estimates from more than four-dozen economists who, if you can believe it, get paid handsomely to guess at such things, was 0.2% to 0.6%. December’s headline readout was revised sharply higher to reflect a 0.5% increase from November.
The MoM print on the core gauge was 0.3%. Compared to January of last year, the ex-food and energy index rose 3.6%, quicker than the 3.3% consensus expected. Excluding food, energy and trade services, the YoY print was 3.4%.
The services index rose 0.3% last month from December. The prior month’s reading there was also revised up sharply. The services gauge has now notched half a dozen consecutive monthly gains. The culprit there was hotel prices, the relevant gauge for which advanced nearly 6%.
On the goods side, the energy gauge rose 1.7% from December, and the food gauge 1.1% (eggs). Those are MoM increases, which is to say they’re quite pronounced.
I hate to be “that guy” — the guy who complains incessantly about the statistical acrobatics and absurdist interpretational claims which allow technocrats to assert that inflation’s under control if you don’t count things regular people actually need and purchase and only count things they don’t — but I’m compelled to warn you that the narrative around this PPI release is likely to be grating.
On Wednesday, Jerome Powell emphasized that the Fed wanted to see the PPI numbers before getting too worked up about the CPI overshoot. Elements of the PPI report inform the PCE price measure the Fed prefers when it comes to setting policy. And in that respect, Thursday’s release might be construed as disinflationary, ridiculous as that sounds (and is).
Here’s Bloomberg to macro’splain: “Economists pay close attention to the PPI report because several of its components feed into the Fed’s preferred inflation measure [and] those categories were more favorable in January, including declines in most health care items and airfares.” As BMO’s Ian Lyngen wrote, putting some math to it, things like airfares and doctors visits were benign, “suggest[ing] core-PCE in January will be 0.3% (or even a ‘high’ 0.2%) versus what had been fears of a high 0.3%.”
Obviously, that’s completely irrelevant on Main Street, where exactly no one said “Wow! My PCP visit this month sure was cheap, and how about the deal on this plane ticket!” Do note: The most widely-followed measure of consumer inflation expectations showed a dramatic advance at the one-year point in the preliminary readout for February.
The figure below just plots core PPI and CPI on a YoY basis.
We can debate this until the cows come home, but either three equals two or it doesn’t. (It doesn’t.)
The bottom line’s simple: Inflation hasn’t made it all the way back down to 2% in the US, progress in that direction has stopped and households are furious enough about the situation to re-elect a populist demagogue, who’s also a felon.
That’s the inescapable reality right now, and as I never tire of reminding readers, populism’s historical track record for problem-solving is quite poor.
