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:
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:
You’ve always said inflation is sticky and has a tendency to want to continue to rear its ugly head. We’re seeing that in action right now. Thanks, Wolf.
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.
For people with funds available for investing, 1981 presented an excellent opportunity to lock in 15% yields on 30 year zero coupon US Treasuries. These days, I don’t think bond yields are high enough to compensate investors for likely future inflation.
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.”
It would be impossible IMO, for us to ever have interest rate as high as they were during the 80’s again, given our 38 Trillion $ debt. After reading another one of Wolf’s Awesome reports, I feel comfortable to continue just laddering my CD’S for 3 to 6 months!
Not a bad time to ladder CDs! Hopefully when the tide rolls back in the market’s fit will be over 😆
Was it impossible for Argentina?
They made it possible, by depreciating the currency. The same thing will happen in the US. Check out Ray Dalio’s thoughts.
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!
Actually after all the inflation of the 70’s bonds were worth a ton. People holding them had to be getting rich. ‘82-‘86 to be specific
It’s always the trend that looks obvious that reverses, then everyone smacks their forehead and says “if only I had bought some of that”
Good point, but I would imagine that the only way long-term bond yields move lower to push up prices is through a very nasty recession or worse. I have had a modest position in TLT now going on 3 years, waiting for yields to fall as a result of a recession. I’ve slowly started to sell out of that position small losses. I’m getting tired of waiting on a recession. I don’t see myself buying into TLT in future or bonds longer dated than 10 years at most.
Forget about TLT 🤔 times like these were made for LTPZ! It’s like a TIP fund with risk and volatility!
Like SCHP on crack. (NFA, I own the fund because I like to party) 🎉
And when it rolls over, you’ll know the storm has passed…
Then you buy again when it’s cheaper than dirt 🫡
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.
Because it is clear the stock market is overvalues.
NVIDIA went down 5% after their earnings. Everyone knows the top is in and it is time to get out.
The idea that Nvidia’s 70% margin is stable is the biggest joke of them all. I just don’t see this lack of competition lasting indefinitely.
Tariffs hit → prices rise → consumers squeezed → companies sell less → economy slows → unemployment rises → Fed cut rates → higher bond prices → so smart money buys bonds now in anticipation of that whole chain playing out.
Nice theory except in reality it breaks at step 2, “prices rise”.
Wolf’s data (and much other data) show tariffs impacting producer prices and consumer company margins. But not consumer prices. Companies have not been able to pass along higher goods prices.
The theory also breaks down at “Fed cut rates -> Higher bond prices”. The Fed has cut its overnight interest rate several times in the past year and a half, but that has not reduced the longer term rates that drive bond prices.
This was my question too.
PPI is sending the same message it was sending in mid-2021, to those willing to listen.
But yet again, people are fleeing into long-duration treasuries as if they don’t remember those getting utterly smashed just four short years ago.
My reason to flee the stock market would be to free up funds for shorting TLT.
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.
For the past 3 months, the Swamp has been posting on this site that inflation is accelerating. No one has been responding to my posts. I see a rate increase just around the corner to knock this inflation out. Walsh is just the right person to do this. The sooner the better.
I doubt anyone has the fortitude to do this. The caterwauling from the media would be deafening.
SC,
Even you will be surprised by how high inflation will get. This is when they will CUT rates—for the common good.
IDK, have you seen the following hawks/doves table, which lists which FOMC members have voting rights for the next 3 years?
https://www.itcmarkets.com/hawk-dove-cheat-sheet-2/
As I stated before, Walsh was nominated to take the blame for inflation, and for efforts to fight inflation. He is the foil, just as JPow was.
Inflation will get high. Walsh will come under fire from the president. None of us will remember that it was the president calling for rate cuts while inflation was too high in 2025 and 2026. All the media repeaters will walk around repeating that the inflation is Walsh’s fault, and feel smart for repeating the slogans they saw on the interwebs.
Chris B,
Warsh with an r
They should never have cut rates in the fall of 2024.
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.
it is truly amazing; I had to search for it on WSJ. Even though it purportedly rattled the almighty stock market, and is possibly behind a flight to safety happening right now. I guess they need their exit liquidity.
I believe I remember Wolf posting an article a long time ago about billionaires purchasing most of major newspapers, etc. even though these were known money losing businesses.
Exhibit A for why people who only subscribe to the media matching their ideological alignment are walking around so misinformed all the time.
If PPI is lower than expected next month, the WSJ will make it front-page news, and the people who didn’t notice January’s blowout will get the false impression inflation is falling.
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?
Has been going on 5 years now
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.
At what point can we admit that the government doesn’t give an F about inflation?
If the asymmetric “average” inflation target didn’t convince people nothing will.
Good question.
I propose “when they haven’t achieved inflation at or below their 2% target in five years or more.”
Oh wait……
It’s not surprising it took some time for the tariffs to start hitting the charts. The companies I know that purchase in Asia front loaded for 2025 during the latter half of 2024. 2026 inventories now have tariffs baked in. I’m seeing it with dramatic price increases for bike parts especially tires. I assume consumer electronics that require chips and memory will face demand pressures later this year. Better buy your latest phone ASAP.
Tariffs have been hitting the PPI charts for many months, and I’ve talked about it many times. Companies are paying the tariffs obviously, and they’re passing them on to each other obviously, and eating them. That’s what the PPI shows. This is not consumer price inflation. This is inflation in what companies buy. And so far, very little of it has gotten passed on to consumers, so the tariffs have only mildly touched consumer price inflation.
But if companies have been passing them on to each other and eating the tariffs, without raising consumer prices proportionally, then how has the S&P500’s profit margin been steadily rising?
https://dqydj.com/sp-500-profit-margin/
Few of the biggest S&P 500 companies sell imported goods to consumers. Nvidia has gigantic profits and obscene profit margins, but only a minuscule portion of that profit comes from its consumer products. Amazon makes most of its profits in its AWS division, not retail, and it doesn’t care whether its third-party vendors make any money or not – it gets a fee from each transaction and from other services it provides for them. Tesla’s vehicles have about 65% to 70% US content, and its profit has plunged. Meta and Alphabet sell almost no goods to consumers. Apple got tariff exemptions. USMCA compliant goods are not tariffed…
Most of the S&P 500 profits are from services (not tariffed). Other companies are selling goods to other companies or governments, not consumers (Boeing, Caterpillar, GE Aerospace, RTX, GE Vernova, Northrop Grumman, oil & gas drillers such as ExxonMobil, and the US imports little gasoline (it’s a big exporter of gasoline and diesel), etc.
And the automakers other than Tesla – they do sell to consumers through the franchise system — have had huge GAAP losses in 2025 because they ate the tariffs lock, stock, and barrel.
Assume retailers can’t raise prices but are starting to pay higher costs. What happens to margins?
Then stocks follow. So buy your latest phone now but take your time buying stocks.
INFLATION FEAR RETURNS
UBS DOWNGRADES US STOCK MARKET
It’s called deflation in stocks prices. Growth slowing as companies can pass the higher costs to consumer.
Inflation remains one the most powerful weapon in managing the huge debt of a nation, but it’s a double edge sword.
It could easily create a cruel internal conflict and here it surely means a civil war, given the polarization in US.
If the growth won’t not exuberant, it’ll be an incredible problem for many administrations to come.
Not just an internal conflict, but ultimately, it can destroy the trust foreigners have in your bonds, which trust is the very reason they wanted your bonds in the first place.
Civil war? Who will bring the chicken tendies? Your average American can’t go camping in anything less than an $80,000 RV, so I don’t see them marching on Appomattox any time soon.
What will happen is what is already happening. A population that doesn’t understand how a $39T national debt means a declining standard of living will continue to politically swerve toward whichever politicians make the boldest lies about how they’ll centrally manage our economy.
There is no solution, because their future was already mortgaged away by the deficits people voted for 20, 30, and 40 years ago. Hopefully the Boomers go quietly without gloating about their heist.
But what we will get is more government management of the economy, which will slow growth just as the deficits hit a critical point. People have been predicting a chaotic crash in the 2020s-2030s since at least the late 1990s, and we’re hurtling toward that future.
See you all in the refugee lines.
I’m just over here fist bumping the bond market…
If on Tues Mar 31 QQQ (C) > 620: [1M] will flip. If above 601: for the [3M] it’s good enough. If not: no harm is done!
If on Mar 31st SPX closes > 6,690 for the [3M] it’s good enough. SPX will close Dec 17/18 gap and Nov 21/24 gap.
How much of services is wages? All of it? Half of it? These government reporting categories often have roundabout definitions that make them hard to interpret.