CargoNest's bonded warehouse in Venice, Fla., where the company manages supply chain operations is pictured in May.Octavio Jones/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 3½ 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 Labour 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 in margins, including for professional and commercial equipment wholesaling as well as apparel, footwear and accessories retailing.
Some components, like domestic airfares and health care, 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-per-cent target, increased solidly last month. Economists estimated the so-called core PCE inflation, excluding food and energy, increased by as much as 0.5 per cent on a monthly basis in January after rounding. That measure rose 0.4 per cent in December, which was the biggest advance in 10 months.
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“Wider margins for producers could add some upside for consumer costs in 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 per cent last month after advancing by a downwardly revised 0.4 per cent in December, the Labour Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI would gain 0.3 per cent after a previously reported 0.5 per cent increase in December.
In the 12 months through January, the PPI increased 2.9 per cent after rising 3 per cent 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 per cent last month after gaining 0.6 per cent in December. Core producer inflation increased 3.6 per cent on a year-over-year basis. The report was delayed by a brief shutdown of the federal government that ended early this month.
Services prices jumped 0.8 per cent in January, reflecting a 2.5 per cent increase in trade services, which measure changes in margins received by wholesalers and retailers. Margins for professional and commercial equipment wholesaling surged 14.4 per cent, indicating businesses were passing on tariffs.
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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 per cent, but the cost of services less trade, transportation and warehousing was unchanged.
“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 stock market drop on Wall Street. The dollar slipped against a basket of currencies. U.S. Treasury yields mostly fell. The U.S. Supreme Court last Friday struck down the sweeping tariffs that President Donald Trump had pursued under a law meant for use in national emergencies. 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 per cent and the cost of portfolio management fees rose 1.5 per cent. Prices for physician care soared 0.8 per cent, but the cost of hospital outpatient care fell 0.9 per cent while inpatient care increased 0.2 per cent. The wholesale cost of hotel and motel rooms decreased 4.1 per cent. These are among the components that feed into core PCE inflation.
Producer goods prices fell 0.3 per cent, with the cost of energy declining 2.7 per cent amid a 5.5 per cent drop in gasoline. Wholesale food prices decreased 1.5 per cent, pulled down by a 10.5 per cent 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 per cent, but the cost of beef and veal increased 1.1 per cent.
Wholesale prices of private capital equipment rose 0.6 per cent, a rise likely related to data center construction for artificial intelligence. The cost of government purchased capital equipment shot up 2.6 per cent, which some economists attributed to either increased spending by the Department of Homeland Security to aid deportations of migrants or defence-related outlays.
Core producer goods prices vaulted 0.7 per cent, the biggest gain since May, 2022, after rising 0.4 per cent in December. They advanced 4.2 per cent on a year-over-year basis, the largest increase since March, 2023.
Economists’ forecasts for the increase in core PCE inflation in January ranged from 0.37 per cent to 0.49 per cent. Core PCE inflation is estimated to have advanced by as much as 3.1 per cent last month on a year-over-year basis, which would be the largest gain in nearly two years, after rising 3 per cent 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.