Prices charged by producers rose 1 percent in January, according to data released Tuesday by the Labor Department, twice the jump projected by economists.
The producer price index (PPI) for final demand, which tracks wholesale prices for goods and services, rose far higher than the 0.5 percent consensus estimate in January. On an annual basis, the PPI for final demand was up 9.7 percent, in line with a record set in December.
Supply chain disruptions, labor shortages, COVID-19 containment measures and other pandemic-related obstacles have hindered manufacturers and suppliers from meeting a rush of consumer demand. The global squeeze has driven prices higher for businesses, prompting a sharp increase in consumer prices as well.
The Labor Department pinned more than 40 percent of the total January increase in the PPI for goods on a 0.8 percent increase in prices for consumers goods other than food and energy products. A 1.6 percent increase in outpatient medical care costs was also a “major factor” in the PPI jump, the department explained.
“The latest advance in producer prices was driven by another strong gain in goods prices, while increases in services prices continued to broaden. The combination of stubborn supply disruptions and elevated energy prices will prevent producer prices from reverting to more normal patterns until later this year,” Mahir Rasheed of Oxford Economics wrote in a Tuesday analysis.
Consumer prices also rose faster in January than economists expected, according to Labor Department data released last week, climbing at an annual rate of 7.5 percent after 0.6 percent monthly increase.
The steady climb of both consumer and producer prices is boosting pressure on the Federal Reserve to take aggressive action to cool inflation.
Fed officials made clear last month they would likely hike interest rates at the bank’s March monetary policy meeting. But financial markets are expecting the Fed to raise its baseline interest rate range by 0.5 percentage points next month, even though the bank typically raises and cuts rates in 0.25 percentage point increments.
The Fed slashed its baseline interest rate range to zero to 0.25 percent in March 2020 as the coronavirus pandemic cratered the global economy. The bank has not hiked interest rates since December 2018.
Updated at 9:46 a.m.