U.S. producer prices came in above expectations in January, with final demand PPI rising 0.5 percent sequentially and 2.1 percent year-on-year. Excluding food, energy, and trade, PPI rose 0.4 percent sequentially and 1.5 percent year-on-year. According to a Barclays research report, headline PCE is likely to have risen 0.18 percent sequentially and 1.9 percent year-on-year in January.
Stripping food and energy, PCE is likely to have risen 0.19 percent month-on-month and 1.7 percent year-on-year. Large falls in airline fares, financial services and used car prices components of the PPI report counter a modest rise in health care categories. Therefore, core PCE is likely to have come in slightly softer than core CPI in January, said Barclays.
Services PPI inflation rebounded after coming in soft for a couple of months. The underlying detail was a mixed bag. A solid rise in trade margins was countered slightly by declining costs of transportation and warehousing. Meanwhile, PPI services prices rose at a sound pace and aided in rebound of overall services PPI inflation.
Core goods PPI inflation rose 0.3 percent sequentially and 0.7 percent year-on-year, steadying after the softness in 2018-2019. Despite the recent modest upward trend in core PPI, it remains on the low end of its historical range, which likely reflects the pass-through of the stronger dollar to pipeline price pressures, as well as last year’s softness in import prices.
“The January report is on the strong side and the core components of PPI have started to stabilize after treading water throughout 2019. We believe that pipeline and consumer prices will likely be supported by domestic demand this year, and the recent stabilization in core PPI bodes well for the inflation outlook. Nevertheless, we note that this stabilization is taking place at a low level and we still believe that risks of a significant overshoot in inflation from rising capacity utilization and pipeline price pressures are limited at this point. In addition, low core goods inflation indicates that the effects of higher tariffs on pipeline inflation are likely being offset by the stronger dollar and weaker import prices”, added Barclays.
