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Producer price index increases 0.5% in December

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Services account for bigger-than-expected rise in PPI

By Lucia Mutikani

WASHINGTON, Jan 30 (Reuters) - U.S. producer prices

increased by the most in five months in December amid some

pass-through from import tariffs, suggesting inflation could

pick up in the months ahead and allow the Federal Reserve to

keep interest rates steady for a while.

The larger-than-expected rise in the Producer Price Index

last month reported by the Labor Department on Friday was driven

by a surge in services, mostly trade services, which measure

changes in ‌margins received by wholesalers and retailers. There

were also strong increases in the prices of hotel and motel

rooms as well as airline fares. But goods prices were unchanged.

The U.S. central bank on Wednesday left ​its benchmark

overnight interest rate in the 3.50%-3.75% range. Fed Chair

Jerome Powell attributed the overshoot in inflation to tariffs,

adding "but there's an expectation that sometime ‍in the middle

quarters of the year we'll see tariff inflation topping out."

"This report validates the pivot of ⁠the Fed away from labor

market risks ⁠back toward price stability," said Carl Weinberg,

chief economist at High Frequency Economics.

The PPI for final demand jumped 0.5% last month, the biggest

rise since July, after an unrevised 0.2% gain in November, ‌the

Labor Department's Bureau of Labor Statistics said. Economists

polled by Reuters had forecast the ​PPI climbing 0.2%.

In the 12 months through December, the PPI increased 3.0%

after rising by the same margin in November. The PPI advanced

3.0% in 2025 after rising 3.5% in 2024.

The BLS is now caught up on the PPI and Consumer ⁠Price Index

releases that were delayed by the 43-day shutdown of the ‍federal

government. U.S. Senate Republicans ​and Democrats were on Friday

racing to avoid another shutdown at midnight, which would delay

data releases from the BLS, including January's employment

report due next Friday.

A 0.7% increase in services accounted for the rise in the

PPI last month. They were driven by a 1.7% ‍jump in margins for

final demand trade services, which made up two-thirds of the

increase in services. Businesses have been absorbing some of

President Donald Trump's sweeping import tariffs, preventing a

sharp increase in inflation.

TARIFF PASS-THROUGH REMAINS UNEVEN

"Tariff impacts continued to flow through producer costs

unevenly in December," said Ben Ayers, senior economist at

Nationwide. "At a broad level, costs associated with tariffs

remain muted ... but localized effects can be pronounced. Trade

services...spiked in December, likely from producers looking to

recoup some of the losses caused by higher production costs over

2025."

The cost of services less trade, transportation and

warehousing increased 0.3%, while prices for transportation and

warehousing services ​rose 0.5%.

Portfolio management ‍fees increased 2.0% after gaining

1.4%. Airline fares soared 2.9% while wholesale prices of hotel

and motel rooms surged 7.3%. These categories are among the

components that go into the calculation of the Personal

Consumption Expenditures price indexes, the inflation measures

tracked by the Fed for ​its 2% target.

Economists' estimates for December core PCE inflation ranged

from an increase of 0.3% to 0.4%, which would translate into a

year-on-year rise of 3.0%. The PCE inflation data for December

is due to be released on February 20. The core PCE price index

has risen by 0.2% for five straight months. Core PCE inflation

increased 2.8% year-on-year in November.

The PPI inflation data was overshadowed by Trump's

nomination of Kevin Warsh to replace Powell when his term at the

helm of the central bank ends in May. Warsh is a former Fed

governor and frequent critic of the central bank.

U.S. stocks opened lower. The dollar was trading higher

against a basket of currencies. U.S. Treasury yields ​rose.

Producer goods prices were unchanged in December after

increasing 0.8% in November. Energy prices dropped 1.4% after

rebounding 3.7% in November. They were held down by lower

gasoline prices. Food prices fell 0.3% amid a 20.4% plunge in

the cost of fresh and dry vegetables, which likely reflected the

rolling back of some tariffs by the Trump administration to

lower costs for consumers. Food prices were ‍unchanged in the

prior month.

Excluding food and energy, producer goods prices advanced

0.4% after rising 0.2% in November.