It will further fuel the acceleration of the Fed-favored PCE Price Index.
By Wolf Richter for WOLF STREET.
The Producer Price Index (PPI) for services spiked by 0.81% (+10.2% annualized) in January from December, seasonally adjusted, the second spike in a row. The PPI for “core” goods, which excludes food and energy products, spiked by 0.68% (+8.5%), the most since 2022. PPI does not track import prices and tariffs; it tracks prices that companies charge each other. So it tracks how companies are shuffling the costs of the tariffs around amongst each other. But the PPI for finished core goods rose by a more modest but still high 0.42% (+5.2% annualized), suggesting that there is resistance to price increases among consumer-facing companies as they’ve had a hard time passing on price increases to consumers without losing sales.
The worst inflation impulses were in services in January, and the services PPI weighs 68% of the overall PPI. It moves the needle.
The PPI for Final Demand Services spiked by 0.81% (+10.2% annualized) in January from December after the 0.67% spike in December, seasonally adjusted, according to data from the Bureau of Labor Statistics today (blue in the chart). The 6-month average rose by 4.1% annualized, a hair less than in December, which had been the worst since February 2025 (red).
Within the services PPI, two of the three major categories moved up sharply:
- Trade services PPI (weighs 19% in overall PPI): +2.5% month-to-month not annualized, driven by professional & commercial equipment wholesaling: +14.4%.
- Transportation & warehousing services PPI (weighs 4.9% in overall PPI): +1.0% month-to-month not annualized.
- Finished services less trade, transportation & warehousing (weighs 38% in overall PPI): unchanged.
Year-over-year, the services PPI accelerated to 3.44%, the third month in a row of acceleration.
The low point, the point of the coolest recent services PPI inflation, was in December 2023 at 1.8%.
Impact on the Fed-favored PCE Price Index:
The PPI for Portfolio management, which feeds into the PCE Price Index of January (to be released March 13), spiked by 1.5% month to month not annualized in January, the fourth month in a row of big spikes. Year-over-year, it spiked by 17.9%. This ads to indications that the Fed-favored core PCE price index, which was already 3.0% in December, will further accelerate away from the Fed’s 2% target.
Goods prices.
The PPIs final demand for both food and energy plunged month-to-month:
- PPI for Food: -1.5%;
- PPI for Energy: -2.7%.
But goods prices without food and energy were another thing.
The Core Goods PPI final demand (excludes food and energy) spiked by 0.68% in January from December (+8.5% annualized).
The 6-month average rose by 4.7% annualized. Both were the worst since 2022.
The tariffs are percolating through the goods categories at various stages of the PPI as companies try to pass them on to each other. But consumer-facing companies have resisted price increases because consumers have resisted price increases, and these companies had trouble passing on higher costs to consumers without losing sales.
Year-over-year, the core goods PPI jumped by 4.2%, the worst since March 2023.
The “finished core goods” PPI — goods ready to be sold to the end-user — also accelerated, but not to the extent the “core goods” PPI has: 0.42% month-to-month (+5.2% annualized). The 6-month average rose by 4.1% annualized.
Year-over-year, the finished core goods CPI jumped by 3.8%, the worst since July 2023.
“Core PPI Final Demand, which includes all goods and services except food and energy, spiked by 0.80% month-to-month (+10.0% annualized), driven by 0.81% spike in the services PPI.
The 6-month average rose by 4.3% annualized, same as in December, and both were the worst since January 2025.
Year-over-year, core PPI accelerated to +3.58%, the worst since March 2025.
The overall PPI Final Demand, muffled by the plunge in food and energy prices, jumped by a more modest but still bad 0.48% month-to-month (+5.9% annualized).
Year-over-year (red in the chart), the overall PPI rose by 2.9%.
Inflation has been broadly accelerating since 2023 at the producer level, except in energy products, where prices have plunged.
Here we’re looking at this mess on a year-over-year basis for overall PPI (green double line), core PPI (purple line), services PPI (red line), and core goods PPI (yellow line), and it clearly shows the trend that started in 2023:
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I was born too late to remember the ’70s. I guess it’s time for a redux?
I remember the 70’s well, especially the late 70’s when long term bonds were cratering. Called “Certificates of Confiscation “ at one point.
You’ll never forget the joy of an 18% mortgage rate on a renewal date that hit our family in ’81. I was 26 then with a young family and home to pay for. It was a real incentive to never ever have another mortgage or owe anyone for anything ever again….. for sure. Have owned a home outright from 1995 onwards, and now this is all just a sideshow. If an Iran strike goes off into unintended consequences….well, you might just see that redux. Luckily, the economy has inertia and is still stumbling forward, somewhat. However, it can change in an instant. Back then it was the oil embargo. It could be many things this time around. A few sinking tankers and missile strikes will change everything.
I remember an old customer of mine talking about a co-worker who just bought a new house. His words, “Sure, the Guy’s mortgage is affordable right now, but it has to be affordable when you’re not working too.”
Between high and rising inflation, burgeoning supply of treasuries and Kevin Warsh’s desire to reduce the Fed’s balance sheet;
It sure doesn’t look like long term bonds are a good investment
Agreed. Everyone says that the only way out of our debt is thru inflation (devaluing the debt), but then they go invest in long bonds as if that isn’t the very investment that’s being devalued!
Despite the PPI figures, yields on Treasury notes and bonds are down today, some substantially down. MSM say it is a flight to safety. But safety from what? Generally, when inflation numbers shoot up, yields also shoot up. I wonder what is happening. Why would the market want to push yields lower if an increase in inflation is starting to raise its ugly head.
Safety from getting crushed in the stock market.
What caused the collapse of PPI Final Demand in the second half of 2022? That data is noisy, but the mid-2022 drop was enormous.
So these are “% change” charts, not “price level” charts. In my CPI articles I usually present both. When the year-over-year % change plunges from +10% to +2%, prices are still increasing by 2% but the pace of increases is much smaller than 10%.
The pace of inflation cooled dramatically in 2022 from the huge spike in 2021 through mid-2022. Energy prices collapsed (big negative % change). Many goods prices, which had exploded, also dropped, including commodities prices, which impact PPI more. Services inflation, which was white hot in 2021, cooled a lot. Inflation was raging back then. That’s no longer the case. But inflation is accelerating.
The actual data sure looks like inflation 1) hasn’t gone away and 2) is high and 3) is accelerating.
Yet I read and hear from other sources about all the theoretical deflationary factors that “the fed” must valiantly fight, and how based on these theoretical factors, further inflation is not even possible at this point. Maybe they haven’t fully given up yet on the disgraceful modern monetary theory , I don’t know.
And when the data doesn’t align with theory, they just change the subject. Or just don’t talk about it at all. Example -the PPI information isn’t really newsworthy I guess at WSJ – its buried.
This site is the best for inflation reporting, thanks Wolf.
Note how little attention this is getting in major media. WSJ, Bloomberg have it buried.
Yes. When CPI came in awhile back at 2.9%, that was “less than expected” because 3.0% was “expected,” and that was plastered EVERYWHERE. Never mind that it was still .9% above the Fed’s ridiculous target.
I believe that imports average ~14% of GDP, and 2025 Tariffs averaged ~7%,
Tariffs receive the spotlight, but the USD devaluations & FX volatility in 2025, and notably in Dec 25, must also be a component driver on PPI inflation close in magnitude to the tariffs and sometimes greater. Even though the vast majority of imports are settled in USD, foreign suppliers must also be attempting to increase pricing to cover these impacts. (December Annualized changes: CNY 12.75%, EUR 12.1%, DXY 12.8%)
Is it still transitory?
Wolf, attempting to put a couple of your articles together: This article seems to shine a new light on the electricity demand article that you published earlier this week. With such high demand for AI data centers, it follows that there would be an increased demand in services, correct? That is, the spike in the services aspect of the PPI follows the massive demand for data centers. Assuming that correlation the case (please correct me if I am wrong), services inflation seems like it will be very sticky for some time.