Inflation Fears Grow As Producer Prices Rise To 3.5%, Clouding Fed Interest Rate Cut Hopes

Inflation is back in the spotlight as broad-based price pressures hit U.S. producers in January 2025, fueling concerns that businesses will either absorb rising costs or pass them to consumers and dampening hopes for Federal Reserve interest rate cuts.

The Producer Price Index surged 3.5% year over year in January, according to Thursday's release from the Bureau of Labor Statistics.

This marks an acceleration from December's 3.3% and exceeds the 3.2% forecast tracked by TradingEconomics. January's surge also represents the highest annual reading since February 2023 and the fourth consecutive increase in the headline index, highlighting persistent inflationary pressures.

On a monthly basis, PPI climbed 0.4%, decelerating from December's 0.5% and surpassing the expected 0.3%.

The hotter-than-anticipated PPI follows a similarly stronger-than-expected Consumer Price Index report on Wednesday, which showed consumer inflation climbing 3.3% year over year.

Within major PPI categories, energy recorded the highest monthly increase, up 1.7% in January.

“Over half of the broad-based January advance can be traced to a 1.7-percent increase in prices for final demand energy,” the BLS said.

Yet, even when excluding volatile food and energy costs, the core PPI soared 3.6% annually, slightly easing from December's upwardly revised 3.7% but still above the 3.3% estimate.

On a monthly basis, core PPI surged 0.3%, slightly easing from an upwardly revised 0.4% reading in December and matching the expected 0.3%.

On Wednesday, Fed Chair Jerome Powell said that an overheated PPI, combined with the already strong CPI, could push up the Personal Consumption Expenditures price index, the central bank's preferred inflation measure.

Inflation measure	January 2025	December 2024	Expectations
PPI YoY	3.5%	3.3%	3.2%
PPI MoM	0.4%	0.5%	0.3%
Core PPI YoY	3.6%	3.7%	3.3%
Core PPI MoM	0.3%	0.4%	0.3%

Market Reactions

Although the PPI report came in hotter than expected, investors didn’t immediately pile into the dollar or unload stocks and Treasuries, as typically seen with strong inflation data.

The U.S. Dollar Index, tracked by Invesco DB USD Index Bullish Fund ETF UUP, fell slightly minutes after the PPI release.

Treasury yields remained steady, with the 10-year yield holding 9 basis points to 4.63%. Rising yields pressured risk assets, sending stocks lower.

Futures on the S&P 500 index, closely tracked by SPDR S&P 500 ETF Trust SPY, rose 0.2% by 8:38 a.m. ET.

In the crypto market, Bitcoin BTC/USD held steady at $96,100, down 1.9% for the session.

Read Next:

• US Stocks Set For A Mixed Start Following Higher Inflation Print: Expert Says Earnings Remain Strong Despite Uncertainty

Image created using artificial intelligence via Midjourney.