US producer prices jump in January on tariff pressures

WASHINGTON (Reuters) – U.S. producer prices accelerated in January, with the cost of goods outside the volatile food and energy category increasing by the most in more than three and a half years as businesses passed on import tariffs and raised prices at the start of 2026.

The stronger-than-expected increase in the Producer Price Index reported by the Labor Department on Friday reinforced economists’ expectations that the Federal Reserve would not resume cutting interest rates before its June 16-17 meeting. The PPI was boosted by a widening of margins, including for professional and commercial equipment wholesaling, as well as for apparel, footwear, and accessories retailing.

Some components, like domestic airfares and healthcare, which go into the calculation of the Personal Consumption Expenditures price indexes, the inflation measures tracked by the U.S. central bank for its 2% target, increased solidly last month.

Economists estimated the so-called core PCE inflation, excluding food and energy, increased by as much as 0.5% on a monthly basis in January after rounding. That measure rose 0.4% in December, which was the biggest advance in 10 months.

“Wider margins for producers could add some upside for consumer costs in the coming months as firms pass along higher costs for services,” said Ben Ayers, senior economist at Nationwide. “Given still-buoyant core inflation and the recent firming of job gains, we expect the Fed to remain on pause during its upcoming March meeting.”

The PPI for final demand rose 0.5% last month after advancing by a downwardly revised 0.4% in December, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI would gain 0.3% after a previously reported 0.5% increase in December.

In the 12 months through January, the PPI increased 2.9% after rising 3.0% in December. The moderation in the year-on-year producer inflation rate reflected the dropping out of last year’s high readings from the calculation.

Core PPI rose 0.8% last month after gaining 0.6% in December. Core producer inflation increased 3.6% on a year-over-year basis. The report was delayed by a brief federal government shutdown that ended early this month.

Services prices jumped 0.8% in January, reflecting a 2.5% increase in trade services, which measure changes in margins received by wholesalers and retailers. Margins for professional and commercial equipment wholesaling surged 14.4%, indicating businesses were passing on tariffs.

Prices also rose for chemicals and allied products wholesaling, bundled wired telecommunications access services, health, beauty and optical goods retailing, and food and alcohol retailing. Transportation and warehousing services prices climbed 1.0%, but the cost of services less trade, transportation and warehousing was unchanged.

Tariff-Related Price Increases

“The problem last month appeared to be tariff-related,” said Paul Ashworth, chief North America economist at Capital Economics. “If we exclude trade and transportation, other core services prices were unchanged.”

The PPI report contributed to a drop in the stock market on Wall Street. The dollar slipped against a basket of currencies. U.S. Treasury yields mostly fell.

The U.S. Supreme Court struck down the sweeping tariffs that President Donald Trump had imposed under a law meant for use in national emergencies last Friday. However, Trump swiftly imposed a 10% global tariff for 150 days to replace some of the emergency duties and then announced it would rise to 15%.

Within the services category, airline fares increased 2.6% and the cost of portfolio management fees rose 1.5%. Prices for physician care rose 0.8%, while hospital outpatient care fell 0.9% and inpatient care increased 0.2%. The wholesale cost of hotel and motel rooms decreased 4.1%. These are among the components that feed into core PCE inflation.

Producer goods prices fell 0.3%, with the cost of energy declining 2.7% amid a 5.5% drop in gasoline. Wholesale food prices decreased 1.5%, pulled down by a 10.5% plunge in the cost of fresh fruits and melons. The Trump administration has rolled back some tariffs on fruit and vegetables to lower costs for consumers. Egg prices crashed 63.9%, but the cost of beef and veal increased 1.1%.

Wholesale prices of private capital equipment rose 0.6%, a rise likely related to data center construction for artificial intelligence. The cost of government-purchased capital equipment shot up 2.6%, which some economists attributed to either increased spending by the Department of Homeland Security to aid deportations of migrants or defense-related outlays.

Core producer goods prices vaulted 0.7%, the biggest gain since May 2022, after rising 0.4% in December. They advanced 4.2% year over year, the largest increase since March 2023.

Economists’ forecasts for the increase in core PCE inflation in January ranged from 0.37% to 0.49%. Core PCE inflation is estimated to have advanced by as much as 3.1% last month on a year-over-year basis, which would be the largest gain in nearly two years, after rising 3.0% in December. The government will publish the delayed January PCE inflation report on March 13.

“While there may be some Fed officials willing to write off this recent firming as a combination of residual seasonality and temporary tariff effects, we suspect it will reinforce the caution and continued concerns about sticky above-target inflation that a majority of FOMC (Federal Open Market Committee) participants expressed in the most recent minutes,” said Michael Hanson, an economist at JPMorgan.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao)