WASHINGTON — Wholesale prices in the United States accelerated in January, the latest sign that some inflationary pressures in the economy remain high.
The Labor Department reported Friday that the producer price index – which tracks inflation before it reaches consumers – rose 0.3% from December to January, after falling -0.1% from November to December. On an annual basis, producer prices rose by a mild 0.9% in January.
The figures follow a surprisingly upbeat report this week that showed consumer prices fell less than expected last month, indicating that pandemic-induced inflation is only coming under control gradually and erratically.
Public frustration over inflation has become a central theme in President Joe Biden’s re-election bid. Inflation rates have fallen from their peaks and are approaching the Federal Reserve’s target level. Still, many Americans remain irritated that average prices are still about 19% higher than when Biden took office.
Some of Friday’s data will be used to calculate the Fed’s preferred price measure, which will be reported later this month. That benchmark is far below the better-known consumer price index. In the second half of 2023, the Fed’s preferred measure showed prices rising just 2% annually, in line with the inflation target.
Fed officials have expressed optimism that inflation is heading down, and in December they predicted they would cut their benchmark interest rate three times this year. Last year, the Fed raised interest rates to a 22-year high, about 5.4%, to expand its concerted efforts to tackle high inflation. The interest rate hikes, which were intended to cool lending and spending, have made it much more expensive to take out mortgages, take out auto and business loans or use credit cards.
Should inflation return to the Fed’s 2% target, high interest rates will likely no longer be considered necessary. Instead, the Fed would be expected to cut rates, making consumer and business loans more affordable.
Some traders and economists on Wall Street had expected the Fed to make its first rate cut as early as March. But two weeks ago Powell made clear that a cut that month was unlikely and said the Fed needed “more confidence” that inflation would sustainably return to its 2% target before it would start cutting rates. Most economists now expect a rate cut in May or, perhaps more likely, in June.
Fed officials have expressed optimism that inflation is heading down, and in December they predicted they would cut their benchmark interest rate three times this year. Last year, the Fed raised interest rates to a 22-year high, about 5.4%, to continue its coordinated effort to tackle high inflation. The interest rate hikes, which were intended to cool lending and spending, have made it much more expensive to take out mortgages, take out auto and business loans or use credit cards.
Should inflation return to the Fed’s 2% target, high interest rates will likely no longer be considered necessary. Instead, the Fed would be expected to cut rates, making consumer and business loans more affordable.
Some traders and economists on Wall Street had expected the Fed to make its first rate cut as early as March. But two weeks ago Powell made clear that a cut that month was unlikely and said the Fed needed “more confidence” that inflation would sustainably return to its 2% target before it would start cutting rates. Most economists now expect a rate cut in May or, perhaps more likely, in June.
