Wholesale inflation in the United States rose again last month, up 9.7 percent from the previous year, another sign that price pressures remain high across the economy.
The producer price index for final demand, which measures inflation before it reaches consumers, jumped 1 percent last month after rising just 0.4 percent in December, the Labor Department said Tuesday.
Companies facing higher wholesale and raw material costs have passed the higher prices on to consumers without hesitation, and recent data suggests that further increases are expected at the retail level.
The government said last week that consumer-level inflation soared over the past year to its highest level in four decades, shrinking households, wiping out wage hikes and bolstering the Federal Reserve’s decision to start raising borrowing rates.
The 7.5% increase in the consumer price index affected the economy, from food and furniture to apartment rent, airfare and electricity.
The producer price index for final demand rose by 9.7% in January compared to last year.
Hot inflation readings have resulted in financial markets pricing the likelihood of a 50 basis point Federal Reserve rate hike next month higher than even.
Inflation is well above the US central bank’s target of 2 percent. Economists expect as many as seven rate hikes this year.
Inflationary pressures are also driven by strong wage growth amid tighter labor market conditions.
The latest inflation data has put additional pressure on President Joe Biden, who has faced harsh criticism from Republicans over the surge in prices.
Sen. Rick Scott, a Florida Republican, blamed the wholesale inflation data on Tuesday for failed Democratic policies and reckless spending.
“It is truly disturbing that even after a year of rising inflation, the Democrats, foolishly following Joe Biden, refuse to do anything to fix this,” Scott said in a statement.
Many economists predict that inflation will soon slow down, especially as the annual rate begins to match the elevated levels that were established around March last year.
The Labor Department announced last week that inflation hit a 40-year high of 7.5 percent.
“While the risks to inflation remain high and a major concern for the Fed, we still believe that inflation should ease in the coming months,” said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.
“However, inflation will continue to well outpace pre-pandemic levels and therefore remain a key concern for policy makers, businesses and consumers alike.”
The shift in spending on goods away from services during the COVID-19 pandemic and the trillions of dollars in government aid due to the pandemic have boosted demand that outstripped supply, causing inflation.
A severe shortage of workers in factories and elsewhere in the supply chain is making it difficult to get products to markets.
Supply bottlenecks showed signs of easing towards the end of 2021, but that progress has stalled as infections caused by the Omicron variant have rampaged across the world.
Although the number of cases in the United States is declining significantly, they are rising in Asia, which is the main source of raw materials for American factories.
Excluding volatile food, energy and trade services, producer prices rose 0.9% in January.
The so-called core producer price index rose 0.4% in December. In the 12 months to January, core PPI rose 6.9% after rising 7.0% in December.
Inflation has been a millstone around the neck of the Biden administration, driving his approval ratings down and potentially boosting Republicans’ chances of turning a profit in the medium term.
A recent CNN poll shows voters entering a mid-season largely focused on economic issues and seemingly unfazed by the Covid-19 pandemic.
A majority of voters, 89 percent, said the economy would be either extremely or very important to their midterm congressional vote, while 83 percent said the same about inflation and 76 percent about taxes.
A majority of voters, 59 percent, said the economy is “extremely important” to their vote, the highest rating they could give it in the poll, and 55 percent said the same about inflation.