2021.02.1713:44:00UTC+00U.S. Producer Price Growth Far Exceeds Estimates In January

The Labor Department released a report on Wednesday showing U.S. producer prices jumped by much more than expected in the month of January.

The Labor Department said its producer price index for final demand surged up by 1.3 percent in January after rising by 0.3 percent in December. Economists had expected producer prices to increase by 0.4 percent.

The jump in producer prices, the largest since the index began in December 2009, was partly due to higher energy prices, which skyrocketed by 5.1 percent in January after soaring by 4.9 percent in December.

Excluding food and energy prices, core producer prices still shot up by 1.2 percent in January after inching up by 0.1 percent in December. Core prices were expected to edge up by 0.2 percent.

A spike in prices for services helped lead the increase in core prices, with the index for final demand services surging up by 1.3 percent in January after edging down by 0.1 percent in December.

The Labor Department said over 70 percent of the broad-based January increase is attributable to a 1.4 percent jump in prices for final demand services less trade, transportation, and warehousing.

The indexes for final demand trade services and for final demand transportation and warehousing services also shot up by 1.0 percent and 1.3 percent, respectively.

The report also showed the annual rate of producer price growth soared to 1.7 percent in January from 0.8 percent in December.

Core producer prices were up by 2.0 percent year-over-year in January, reflecting a notable acceleration from the 1.2 percent increase seen in the previous month.

"The modest year-on-year increases, despite big month-on-month increases, suggest this is reflation, not inflation," said Chris Low, Chief Economist at FHN Financial. "That is, prices are rising after falling earlier."

"Some further increases in the PPI are likely given commodity price behavior in recent weeks," he added. "These will boost the PPI and - to a much lesser extent - the CPI in the months ahead."

Last Wednesday, the Labor Department released a separate report showing consumer prices increased in line with economist estimates in the month of January.

The Labor Department said its consumer price index rose by 0.3 percent in January after edging up by a revised 0.2 percent in December.

Economists had expected consumer prices to climb by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Excluding food and energy prices, core consumer prices came in unchanged for the second consecutive month. Economists had expected core prices to rise by 0.2 percent.

Compared to the same month a year ago, consumer prices in January were up by 1.4 percent, unchanged from the annual growth seen in December.

Meanwhile, the annual rate of growth in core prices slowed to 1.4 percent in January from 1.6 percent in the previous month.