Wholesale Prices Grow at Fastest Rate Since Fall 2018

Workers sort through tomatoes after they are washed before being inspected and packed in Florida City, Fla., on Feb. 5, 2020. (AP Photo/Wilfredo Lee, File)

(CN) – American wholesale prices went up 0.5% in January, the biggest hike since October 2018, driven by a surge in the cost of services.

The producer price index, a key gauge of inflation that measures costs before they reach the consumer marketplace, is up 2.1% from this time last year.

That’s in line with the Federal Reserve’s 2% annual inflation target. Over the past several years, inflation has consistently fallen below that goal. The central bank cut its key interest rate three times last year because of the low inflation pressures and economic uncertainty based on factors like President Donald Trump’s trade war with China, but it is not expected to do so again this year.

Last month’s 0.5% increase in wholesale prices comes after a modest 0.2% gain in December and a 0.1% drop in November, according to a Labor Department report released Wednesday.

Prices for services accounted for 90% of January’s increase, as they shot up 0.7% from the month before. Wholesale costs for food increase by 0.2%, while energy costs dropped 0.7%.

Not counting the always volatile food, energy and trade categories, so-called core wholesale prices grew by 0.4% last month and are up 1.5% from a year ago.

Joel Naroff of Naroff Economic Advisors suggested wholesale prices could be pulled back down in the coming months in light of the Chinese coronavirus working its way around the globe.

“Looking outward, the coronavirus is slowing world demand and commodity prices are falling as a consequence. Thus, expect wholesale costs to be soft as long as the epidemic persists,” he wrote.

He said industrial production is likely to be weak while the virus is still a global health concern.

“Supply chains have been disrupted and companies around the world are slowing production and sales due to the lack of supplies,” Naroff said.

Last week, the Labor Department reported that the consumer price index – another measure of inflation that tracks changes in what American shoppers pay for a wide range of products – increased by 0.1% in January and is up 2.5% from the same time last year.

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