The Producer Price Index for final demand increased 0.3 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.1 percent in December 2023 and advanced 0.1 percent in November. (See table A.) On an unadjusted basis, the index for final demand rose 0.9 percent for the 12 months ended January 2024.
In January, the advance in the index for final demand can be traced to a 0.6-percent rise in prices for final demand services. In contrast, the index for final demand goods decreased 0.2 percent.
The index for final demand less foods, energy, and trade services rose 0.6 percent in January 2024, the largest advance since moving up 0.6 percent in January 2023.
Buried one page down was this ditty:
A 2.2-percent increase in the index for hospital outpatient care was a major factor in the January rise in prices for final demand services.
Uh, didn't we see that in the CPI as well? We did, we did! I taw a puddy tat!
Final demand energy was down last month but that's coming back out particularly in gasoline which has been up huge over the last couple of weeks and now is in the survey period, so it will be in the next pair of reports -- like it or not. All other things being equal this will spike both the next CPI and PPI numbers.
I remain concerned on an economic basis for the Transportation and Warehousing numbers which continue being quite weak with the only exception being the seasonally-expected period from July to October (otherwise known as "Christmas.")
January already sees the figures in the Intermediate unprocessed energy materials -- up 3.8%. That will roll through, of course, and given what we're seeing at the pump that likely understates the impact.
One interesting element is that the intermediate services demand numbers were driven largely by non-residential rents. This is a bit of a puzzler given what we're seeing in the commercial real estate space. It may be nothing more than landlords trying to force higher property taxes and operating expenses on their tenants but that usually is billed out separately and I do not know if the BLS attempts to aggregate that back in. If so then that would not inure to the benefit of the landlords and might be a false signal. We'll see.
Intermediate demand service indices were all up as well and indicating more flow-through pressure in the pipelines into the services side of the economy and the CPI.
This data puts a further nail in the coffin of those expecting rate cuts this year, particularly given that goods and services in the PPI typically lead the CPI by six to twelve months and thus this data forecasts more forward price pressure over the remainder of 2024.
I have to marvel at the market's reaction -- once again, as with the CPI, essentially the entire dive off the number release was recovered. However, the TNX -- 10 year Treasury -- did indeed rise and so did the IRX (13 week bill yield) so it appears the bond market got the message even if stocks did not.
Right up until an hour or so before people decided "uh, maybe that wasn't so smart particularly given the long weekend."
When the two disagree the bond market is usually right.