Wholesale inflation posted its biggest jump in a decade, rising 1.1 percent in January — nearly a fourfold increase over the 0.3 percent rise many analysts projected.
Markets remained in negative territory as investors digested the surprising news. But treasury bond prices recovered after tanking Friday morning.
The Producer Price Index, which measures inflation pressures
before they reach store shelves, followed a mild 0.2 percent
increase in December, the Labor Department reported Friday.
Inside The Numbers
The leap was led by record price increases for natural gas used
in homes, for powering electric utilities and in industrial
production. However, price increases for other goods were
widespread.
The PPI report also showed that prices for goods other than food
and energy products — which can swing widely from month to month —
rose a sharper-than-expected 0.7 percent in January, following a
slim 0.1 percent rise the month before. Analysts were forecasting a
0.1 percent rise in this "core" rate of inflation.
The 0.7 percent reading in the core rate was the highest since a
1.0 percent rise in December 1998. Meanwhile, The 1.1 percent rise in wholesale prices was the largest since a 1.3 percent increase registered in September 1990.
In January, energy prices rose 3.8 percent, the biggest increase
since a 6.1 percent spike in June. This trend of rising energy costs reflects production limits and strong demand.
The Federal Reserve slashed interest rates by a full percentage
point in January, in an effort to prevent the weakening economy
from slipping into a recession. One of the reasons Fed
policy-makers cited for being able to act so aggressively was that
inflation — outside the burst in energy prices — had remained in
check.
Economy Continues its Slowdown
In another report, the Federal Reserve said output at the
nation's factories, mines and utilities dropped by 0.3 percent in
January, further evidence of the economic slowdown. Many analysts
had expected a stronger showing, following the steep 0.5 percent
decline posted in December.
January's performance was led by a sharp, 6 percent decline in
output at gas and electric utilities, reflecting moderating
temperatures after December's extreme cold.
Operating capacity, meanwhile, fell to 80.2 percent in January,
the lowest since August 1992, as companies cut back in response to
slackened demand.
One area of the economy that has held up well during the sharp
economic slowdown has been the housing sector. That strength was
evidenced in another report Friday from the Commerce Department
showing that new housing construction rose by 5.3 percent in
January to a seasonally adjusted annual rate of 1.65 million units.
— The Associated Press contributed to this report
