Wholesale inflation remained hot in January, rising more than expected. Here is the latest news release from the Bureau of Labor Statistics.
The producer price index for final demand was up 0.4% month-over-month, higher than the 0.3% forecast. On an annual basis, headline PPI increased 3.5%, above the 3.2% forecast. Core PPI, which excludes food and energy, increased 0.3% in January, as expected. Year-over-year, core PPI eased to 3.6% from 3.7% in December but remained above the projected 3.3% growth.
Below is a chart of the historical series with a callout to the most recent 12 months. Wholesale inflation has accelerated for five straight months and is currently at its highest level since February 2023.
Producer Price Index: Finished Goods
The BLS shifted its focus to the "final demand" PPI series in 2014, but data for these series extend only back to November 2009 for headline PPI and April 2010 for core PPI. Since our analysis emphasizes longer-term trends, we continue to track the legacy PPI for finished goods, which the BLS still includes in its monthly updates. As a later overlay chart will illustrate, the final demand and finished goods indexes remain highly correlated.
In January, the PPI for finished goods rose 0.4% month-over-month, down from 0.8% in December. Year-over-year, headline PPI for finished goods climbed to 2.9%, up from 2.7% the previous month—the highest level since March 2023. Meanwhile, core PPI for finished goods was flat on the month, easing from a 0.2% increase in December. On an annual basis, core PPI for finished goods declined to 2.2% from 2.6% in the prior month.
Producer Price Index (PPI) vs. Consumer Price Index (CPI)
Both PPI and CPI illustrate monthly price changes. However, as their names suggest, the Producer Price Index measures price changes from the producer perspective whereas the Consumer Price Index measures price changes from the consumer perspective. PPI is thought to be a leading indicator of consumer inflation because, for the most part, when producers pay more for goods and services they are likely to pass along those higher costs to the consumer. With that being said, during the 2020 recession producers were unable to pass along price increases, demonstrating the higher volatility of core PPI than core CPI. This relationship is further illustrated in the next chart.
For a closer look at the two main measures of inflation (CPI and PCE) and how they stack up against each other, check out the video below. Note: data is through January 2024.
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