Prices for business owners are skyrocketing and it hints that inflation isn't slowing down any time soon

Prices for business owners are skyrocketing and it hints that inflation isn't slowing down any time soon
A waiter serves food at a restaurant near Times Square in New York City, U.S., December 16, 2021.Jeenah Moon/Reuters
  • The US Producer Price Index surged 1% in January, doubling the median economist estimate.
  • The measure tracks a collection of input costs and is a popular forward indicator for broad inflation.

Businesses' input prices leaped more than expected in January, signaling inflation will stay at historic highs well into 2022.

The Producer Price Index — a popular measure of business costs — rose 1% last month, the Bureau of Labor Statistics announced Tuesday. That marked a significant acceleration from December's 0.2% jump and handily exceeded the median forecast of a 0.5% gain from economists surveyed by Bloomberg. The measure also rose 9.7% year-over-year, a larger increase than the 9.1% estimate.

Core PPI, which strips out volatile food and energy costs, rose 0.8% through January. That overshot the estimate for a 0.5% increase and picked up from the 0.5% gain seen in December.

PPI is among the most closely watched forward indicators for broad inflation. Rising input costs tend to fuel price hikes as businesses struggle to protect their margins. The higher-than-expected PPI print suggests pandemic-era inflation could climb even higher as firms pass soaring costs down to shoppers. Still, some experts saw the report simply delaying peak inflation, and still leaving room for a cooldown in 2022.

"This is a disappointing report, but we remain of the view that core inflation is close to peaking and will be much lower by the end of this year as supply pressures ease and some of the huge increase in margins in some sectors is reversed by a return to more normal market conditions," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.


Prices for final demand goods, or those that are sold for personal consumption or investment, rose 1.3% in January, while final demand service prices edged 0.7% higher. Within goods, the government's index for vehicles and equipment leaped 0.7% while iron and steel scrap prices tanked 10.7%.

Outpatient care powered much of the jump in service prices, with the sector's costs climbing 1.6% through the month. The uptick lines up with the peak of the Omicron variant's spread. The US added a record 1.43 million new infections on January 10, and while daily case counts have since declined, hospitalizations didn't peak until 10 days later.

The PPI report joins other data showing inflation running hotter than anticipated through the start of the new year. Prices for common goods and services soared 7.5% year-over-year in January, according to Consumer Price Index data published Thursday. That was up from the 7.1% pace seen the month prior and marked the fastest one-year inflation since February 1982. With prices for businesses and consumers climbing in lockstep, it's unlikely inflation is cooling anytime soon.

The US retail sales report slated for Wednesday release will give the next hint as to how price growth trends. The data are a popular proxy for overall demand, and a larger-than-expected jump would add to signs that inflation will linger at multi-decade highs. Sales cratered 1.9% in December as the Omicron wave cut into spending and stimulus boosts from earlier in 2021 dried up. Yet economists expect sales to rebound 2% through January.

After the inflation crisis seemed to improve in December, January data shows the problem worsening all over again. Prices continued to rally for businesses and shoppers alike, and the spending that fueled the surge is showing no signs of slowing.