U.S. Producer Prices Surge in December, Fueled by Rising Service Costs
WASHINGTON, Jan 30 (Reuters) – U.S. producer prices accelerated at a faster-than-expected pace in December, according to data released Friday, with a sharp rise in service costs pointing to persistent underlying inflation pressures as businesses start to pass on higher costs from import tariffs.
The Labor Department's Bureau of Labor Statistics reported that its Producer Price Index (PPI) for final demand jumped 0.5% last month, following an unrevised 0.2% increase in November. The reading significantly exceeded the 0.2% rise forecast by economists in a Reuters poll. On an annual basis, the PPI increased 3.0% through December, unchanged from November's pace.
The release of the PPI and Consumer Price Index data had been delayed due to the recent 43-day partial federal government shutdown. The timely publication comes as lawmakers face another deadline to fund the government. A renewed shutdown would again disrupt key economic data, including January's employment report scheduled for next Friday.
The December surge was led by a 0.7% increase in prices for final demand services. A significant 1.7% jump in margins for trade services—which tracks profits for wholesalers and retailers—accounted for nearly two-thirds of the overall services increase. This suggests intermediaries are now raising prices to protect profitability. In contrast, prices for producer goods were flat for the month.
The data indicates a shift in how U.S. businesses are handling the cost pressures from the Trump administration's broad import tariffs. After a period of absorbing some of these costs, firms appear to be transitioning them downstream. The Federal Reserve, which held interest rates steady this week, has acknowledged the inflationary impact of tariffs. Fed Chair Jerome Powell noted recently that while tariffs are contributing to price increases, there is an expectation that "sometime in the middle quarters of the year we'll see tariff inflation topping out."
The stronger-than-expected PPI print adds a layer of complexity for policymakers. It suggests core inflationary pressures remain alive in the pipeline, even as goods prices stabilize, potentially complicating the Fed's patient stance on future rate hikes.
Market Voices
Michael Torres, Chief Economist at Granite Peak Advisors: "This is a clear signal that the pass-through from tariffs is becoming more evident in the services sector, which is a much broader part of the economy than goods. The Fed's 'wait-and-see' approach will be tested if this trend continues into Q1."
Sarah Chen, Portfolio Manager at Horizon Capital: "The market had priced in a more benign inflation outlook. Today's data is a wake-up call. The margin expansion in trade services is particularly telling—it's not just input costs, it's about preserving earnings power in a more uncertain trade environment."
David R. Miller, small business owner (Hardware Supply) in Ohio: "This isn't 'could pick up'—it's here. We've held off raising prices for months, eating the cost of steel and Chinese components. We can't anymore. My customers are going to feel it, and then the Fed will blame 'strong demand.' It's a direct tax on Main Street passed through by this administration's trade war."
Professor Elena Rodriguez, Economic Policy, Georgetown University: "The data underscores the lagged effect of trade policy. The initial absorption phase by corporations is ending. The critical question is whether this is a one-time adjustment or the start of a wage-price feedback loop, especially in a tight labor market."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)