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U.S. Producer Prices Climb 0.5% In January, Much More Than Expected

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Producer prices in the U.S. increased by much more than anticipated in the month of January, according to a report released by the Labor Department on Wednesday.

The Labor Department said it producer price index for final demand climbed by 0.5 percent in January after rising by 0.2 percent in December. Economists had expected producer prices to inch up by 0.1 percent.

The bigger than expected increase in producer prices came even though energy prices slid by 0.7 percent in January after jumping by 1.5 percent in December.

Excluding the pullback in energy prices and a modest increase in food prices, core producer prices still rose by 0.5 percent in January compared to economist estimates for a 0.2 percent uptick.

A jump in prices for services contributed to the stronger than expected price growth, with prices for final demand services surging up by 0.7 percent in January after coming in unchanged in December.

The Labor Department said forty percent of the January increase in prices for services can be traced to margins for apparel, jewelry, footwear, and accessories retailing, which spiked by 10.3 percent.

Michael Pearce, Senior U.S. Economist at Capital Economics, noted hospital inpatient services prices also climbed by 0.9 percent, reflecting a larger annual rise in Medicare payments mandated by the federal government.

"With both of those factors transitory, it seems unlikely that January's rise represents a real turnaround in underlying price pressures in the service sector," Pearce said.

With the much bigger than expected monthly increase, the annual rate of producer price growth accelerated to 2.1 percent in January from 1.3 percent in December.

Core producer prices in January were up by 1.7 percent compared to the same month a year ago, which also reflects a significant acceleration from the 1.1 percent growth in the previous month.

"The jump in Medicare hospital payments will feed through into the Fed's preferred PCE consumer price measure, but it should still remain well below the 2% target, which means that interest rates are going to remain at or below current levels for many years to come," Pearce said.

Last Thursday, the Labor Department released a separate report showing a modest increase in U.S. consumer prices in the month of January, with higher prices for food and shelter offsetting a steep drop in gasoline prices.

The Labor Department said its consumer price index inched up by 0.1 percent in January after rising by 0.2 percent in December. Economists had expected prices to increase by 0.2 percent.

The uptick in consumer prices was primarily due to an increase in shelter costs, which climbed by 0.4 percent in January.

Prices for food and for medical care services also rose during the month, more than offsetting a 1.6 percent nosedive in gasoline prices.

Core consumer prices, which exclude food and energy prices, rose by 0.2 percent in January after ticking up by 0.1 percent in the previous month. The increase in core prices matched economist estimates.

Compared to the same month a year ago, consumer prices were up by 2.5 percent in January, reflecting the biggest annual increase since October of 2018.

The report said core consumer prices in January were up by 2.3 percent year-over-year, the same rate of growth as reported in the previous three months.

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