Core Inflation Rises Higher Than Expected
The Department of Labor released the numbers for the producer price index (PPI) today. The seasonally adjusted figure showed an increase of 1%. This means that core inflation is actually higher than anticipated.
The producer price index is one of the major figures that the Department of Labor reports on a monthly basis. The PPI is indicative of the rate of inflation. If this number is rising, that means tat core inflation is rising. This is bad new for consumers and investors. Under normal circumstances, a rise in PPI would inspire interest rate increases, but considering overall economic slowdown, it is not likely that the Federal Reserve will choose to hike interest rates back up.
The report explains that energy prices are behind the sharp increase for January in finished goods. It was noted, “The upturn in finished goods prices was led by the index for energy goods, which increased 1.5 percent in January after falling 3.0 percent in December.”
The core index rose 0.4%. This figure does not include food and energy items. The wholesale industry prices rose 1.5% in January. That is up from a decrease of 3% in December. Food prices rose 1.7%. Gasoline prices elevated by 2.9%, and residential natural gas costs when up by 0.7%.
Inflation is also on the rise in the automotive, tobacco, pharmaceutical, and furniture industries. Overall, pricing for raw materials, core crude goods, semi-processed goods, and intermediate goods all showed increases last month. Prices have escalated 7.4% in the passed 12 months.
Back to back with disappointing CPI (consumer price index) news, the PPI numbers are causing stress in Wall Street. Inflation is worse than anticipated. The room for even modest rate cuts at this point is narrowing for the Federal Open Market Committee. It is doubtful that they will begin to raise rates. Since they have less of a handle on inflation than anticipated, further rate cuts at the next meeting could be slim to none. We certainly will not see any aggressive cuts like the ones we saw in January. If prices continue to increase, consumer spending could plummet ever further. Should that happen, the economy could slow down even further, or begin to retract. If that happens, we will find ourselves in a full blown recession.
