Wholesale prices likely accelerated again in January as strong consumer demand and pandemic-related supply-chain snarls continued to fuel the highest inflation in decades.
The Labor Department is releasing the producer price index on Tuesday morning, providing a fresh look at just how hot inflation ran in January. Economists expect the gauge – which measures inflation at the wholesale level before it reaches consumers – to show that prices surged 0.5% in January from the previous month.
That would be up from December, when prices rose just 0.2% from the previous month.
The surge in wholesale prices comes on the heels of a separate Labor Department report released last week that showed consumer prices climbed 7.5% in January from the previous year, the biggest increase since February 982, when inflation hit 7.6%. Consumers are paying more for everyday necessities, including groceries, gasoline and cars.
The eye-popping reading – which marked the eighth consecutive month the gauge has been above 5% – will likely amp up pressure on the Federal Reserve to chart a more aggressive course in normalizing monetary policy. The central bank is widely expected to raise interest rates in March, but the hotter-than-expected inflation report could mean that policymakers pencil in a super-sized half-point hike.
Hiking interest rates tends to create higher rates on consumers and business loans, which slows the economy by forcing them to cut back on spending.
"At this point it’s not a question of will they, won’t they – it’s a question of how many hikes we’ll see in 2022, and what the magnitude and pace will be," Mike Loewengart, managing director of investment strategy at E*Trade, said after the CPi report. "Given views on these aspects are all over the map at this point, there is a lot for the market to be uncertain about."
Fed Chairman Jerome Powell has left open the possibility of a rate hike at every meeting this year and has refused to rule out a more aggressive, half-percentage point rate hike, but said it's important to be "humble and nimble."
"We’re going to be led by the incoming data and the evolving outlook," he told reporters during the central bank's policy-setting meeting last month.