Inflation Fears Grow As Producer Prices Rise To 3.5%, Clouding Fed Interest Rate Cut Hopes

Inflation is back in the limelight, strutting its stuff like a diva at a talent show, as price pressures hit U.S. producers in January 2025. Businesses are now caught in a pickle, deciding whether to swallow the costs or serve them up to consumers, all while squashing dreams of Federal Reserve interest rate cuts.

The Producer Price Index decided to throw a party, jumping 3.5% year over year in January, according to Thursday's release from the Bureau of Labor Statistics.

This marks a little dance move from December's 3.3% and even outshines the 3.2% forecast tracked by Trading Economics. January's leap is like the highest jump since February 2023 and the fourth time in a row it's taken the stage, showing inflation just won't take a hint.

On a monthly basis, PPI tiptoed up 0.4%, slowing down a bit from December's 0.5%, but still outpacing the expected 0.3% like a runner who forgot to tie their shoes.

The PPI's unexpected heat followed a Consumer Price Index that was also on fire, showing consumer inflation climbing 3.3% year over year. It's like the inflation Olympics out there!

In the PPI categories, energy took the gold medal for the highest monthly increase, jumping 1.7% in January.

“Over half of the broad-based January advance can be traced to a 1.7-percent increase in prices for final demand energy,” the BLS announced, probably while wearing sunglasses because of all the heat.

Even when you take out the wild cards like food and energy, the core PPI strutted up 3.6% annually, cooling off a tad from December's revised 3.7%, but still beating the 3.3% estimate like a drum.

On a monthly basis, core PPI danced up 0.3%, easing slightly from December's upwardly revised 0.4% and perfectly hitting the expected 0.3% mark like a well-timed punchline.

On Wednesday, Fed Chair Jerome Powell said that an overheated PPI, alongside the already sizzling CPI, might just crank up the Personal Consumption Expenditures price index, the central bank's favorite inflation thermometer.

Inflation measure	January 2025	December 2024	Expectations
PPI YoY	3.5%	3.3%	3.2%
PPI MoM	0.4%	0.5%	0.3%
Core PPI YoY	3.6%	3.7%	3.3%
Core PPI MoM	0.3%	0.4%	0.3%

Market Reactions

Even though the PPI report was hotter than a jalapeño in a sauna, investors didn’t immediately jump into the dollar pool or toss stocks and Treasuries out the window, which is what you'd expect with spicy inflation data.

The U.S. Dollar Index, tracked by Invesco DB USD Index Bullish Fund ETF, took a tiny nap and fell slightly minutes after the PPI release.

Treasury yields stayed as steady as a cat watching a laser pointer, with the 10-year yield holding 9 basis points to 4.63%. Rising yields put some pressure on risk assets, sending stocks on a downward slide.

Futures on the S&P 500 index, closely tracked by SPDR S&P 500 ETF Trust ( SPY ), managed to rise 0.2% by 8:38 a.m. ET, like a determined turtle in a race.

In the crypto world, Bitcoin (CRYPTO: BTC) held its ground at $96,100, down 1.9% for the session, like a stubborn mule refusing to budge.