Price Increases | Weekly Extract February 20
Inflation has misled many prior to the report released on Thursday, which indicated an increase in prices. Producer prices rose more than expected to start the year, causing inflation to pick up in January.
The producer price index, which tracks the number of raw materials sold on the open market, rose 0.7% in July, the largest increase since June. Following a 0.2% drop in December, economists surveyed by Dow Jones had anticipated a 0.4% increase. In contrast to estimates of a 0.3% rise, underlying PPI rose 0.5% excluding food and energy. Core services excluding business services rose by 0.6%, versus the expected rise of 0.2%. On a 12-month basis, overall PPI rose 6%, which is still high, but well below its record high of 11.6% in March 2022.
Following the news, markets fell, with futures for the Dow Jones Industrial Average dropping by approximately 200 points. The PPI reflects the first price manufacturers get on the open market, so while it is not monitored as much as other inflation indexes, it can be an important indication.
The consumer price index for January, which calculates how much consumers pay for goods and services, increased by 0.5% at the same time the PPI increased. Combined, the metrics reveal that while inflation appeared to be slowing as 2022 drew to a close, it actually accelerated in early 2023. January's rise in inflation is being attributed to some seasonal factors, as well as a recovery from months that had more moderate price increases. A role may also have been played by the warm winter and the month-to-month increase in gasoline prices, which are prone to volatility.
Retail sales rose 3% in the month and were up 6.4% from a year earlier, according to a data released Wednesday, showing that consumer spending outpaced inflation. The Labor Department said Thursday that jobless claims declined by 1,000 to 194,000, which was below the Dow Jones estimate of 200,000. The Philadelphia Fed's manufacturing index for February fell to -24.3, which is much lower than the forecast of -7.8.
