Adding more evidence that inflation is still a lingering problem, January wholesale prices were higher than expected, increasing a seasonally adjusted 0.4% for the month, according to the Bureau of Labor Statistics.
The producer price index (PPI), which measures what producers receive for their goods and services, is one more gauge of inflation used by the Federal Reserve to decide how best to tame rising prices. The gauge rose for the sixth consecutive month.
In light of Wednesday’s consumer price index (CPI) coming in at a higher-than-expected 0.5%, it’s clear that inflation will continue to be an issue, and the Fed will be reluctant to lower interest rates until the indicators show more progress toward its goal of 2% inflation.
That is unwelcome news for the housing industry that had been hoping the Fed would continue lowering interest rates this year, which would indirectly help lower mortgage rates and spur more activity in the housing market.
Excluding food and energy, the PPI was up 0.3% for the month, in line with Wall Street forecasts. For the past 12 months, PPI rose 3.5%, well above the central bank’s target. According to news reports, futures pricing shows that the market now doesn’t expect the Fed to lower interest rates until, possibly, October.
Prices for diesel fuel were up 10.4% in January, helping to push energy prices higher. Prices for beef and veal, gas fuels, jet fuel and communication and related equipment also moved higher. Egg prices were estimated to be up 44% month over month, and up a whopping 186.4% from one year ago. At the same time, prices for fresh and dry vegetables fell 22.3%. Pharmaceutical preparations and residential electric power also fell.
There also were revisions upward for December’s PPI to 0.5%, from its original figure of 0.2%, also pointing to inflation being stickier than originally expected.
Despite all the inflationary outlook, 10-year Treasurys, which have a direct impact on mortgage rates, bucked expectations and fell sharply Thursday morning. The 10-year Treasury was at 4.539% in mid-morning trading, down from 4.636% the day before.
The next inflation gauge to watch for is the personal consumption expenditure prices index (PCE}, which is a measure of consumer spending on goods and services. The CPI and PPI are factors in the PCE index, which will be released on Feb. 28.
