\n The prices businesses pay to each other took a sharp turn higher in January, new data showed Friday, indicating that more tariff-related price increases could be still to come.\n <\/p>\n
\n The Producer Price Index rose 0.5% last month, a pickup from December\u2019s 0.4% rate, according to the latest data from the Bureau of Labor Statistics. The annual rate of inflation nudged down to 2.9% from 3%.\n <\/p>\n
\n Economists were expecting wholesale inflation to increase by 0.3%, which would have resulted in a 2.6% annual rate.\n <\/p>\n
\n US stocks moved sharply lower Friday morning, with investors fearing the hotter-than-expected inflation report could lead the Federal Reserve to keep its rate-cutting cycle on pause. The Dow fell 728 points, or 1.47%. The S&P 500 sank 0.8%, and the tech-heavy Nasdaq slid 0.92%.\n <\/p>\n
\n PPI, which measures the average change in prices that producers receive for their goods and services, is closely watched as a potential bellwether for the prices consumers may see in the months ahead.\n <\/p>\n
\n \u201cTariffs are being passed through along the supply chain,\u201d Michael Reid, US economist at RBS Capital Markets, told CNN on Friday. \u201cAnd so, our worry is that this is not the end of the pass through. We have not yet seen the full impact on consumer prices in the goods space.\u201d\n <\/p>\n
\n Gas and food prices tumbled during the month; however, those decreases were countered by a sharp increase in \u201ctrade services,\u201d a category that measures profit margins for wholesalers and retailers.\n <\/p>\n
\n Trade services can be highly volatile on a monthly basis. But economists have closely watched this category during the past year since it could serve as a signal for whether businesses are absorbing the higher costs US importers are paying for tariffs.\n <\/p>\n
\n Trade services leapt 2.5% in January, a potential indication that costs could be passed along to other businesses and consumers.\n <\/p>\n
\n Some of the industries that logged the sharpest increase in trade services included apparel; footwear; chemicals; wired telecommunications; health, beauty and optical products; as well as some food and alcohol.\n <\/p>\n
\n \u201cThese are all things that consumers pay for, directly or indirectly,\u201d Reid said.\n <\/p>\n
\n When excluding food and energy, the core PPI gauge (which provides a measure of the underlying inflation trend) picked up sharply. Prices rose 0.8% versus 0.6% in December to bring the annual rate to 3.6%, the highest in 10 months.\n <\/p>\n
\n Other details in Friday\u2019s report further corroborated the idea that President Donald Trump\u2019s steep and sweeping tariffs continued to drive prices higher for US businesses, which in turn eventually leads to higher prices for consumers<\/a>, Reid said.\n <\/p>\n \n Notably, he said, prices of finished consumers goods excluding food and energy continued to ramp higher, rising to an annual rate of 3.4%. That\u2019s the highest year-over-year inflation rate for that category in more than two years (when goods were winding down from the pandemic-era inflationary burst).\n <\/p>\n \n Also, on the services side, inflation was unchanged if trade (margins), transportation and warehousing prices were excluded.\n <\/p>\n \n \u201cIn this environment, when you think about services, and notably those that exclude the trade-related services, there is no (price) pressure there,\u201d he said.\n <\/p>\n \n The higher wholesale prices very well could translate to more expensive goods and services for consumers, Reid said; however, the alternative isn\u2019t easy to swallow either.\n <\/p>\n \n \u201cWe may not necessarily see a pronounced rise in the prices for these consumer goods, but that would mean there would be margin compression in the sector; and in that scenario, if you don\u2019t get higher prices, you risk seeing more significant layoffs,\u201d he said.\n <\/p>\n