U.S. Wholesale Inflation Surges in December, Fueled by Jump in Service Costs

WASHINGTON — U.S. wholesale inflation reaccelerated sharply in December, driven by a surprising surge in service sector costs, according to data released Friday by the Bureau of Labor Statistics. The figures suggest underlying price pressures remain persistent, even as goods inflation shows signs of cooling.

The Producer Price Index (PPI) for final demand increased 0.5% on a seasonally adjusted basis last month, marking the largest monthly gain since September and exceeding the 0.2% rise forecast by economists. This followed a modest 0.2% increase in November.

The primary driver was a 0.7% jump in prices for final demand services, the most significant advance since July. The Bureau noted that approximately two-thirds of this increase stemmed from a 1.7% rise in trade margins—the difference between what wholesalers pay and what they charge retailers.

"The narrative that inflation is smoothly gliding back to target just hit some turbulence," said Michael Thorne, a senior economist at the Hartford Financial Institute. "This services data is a clear signal that the 'last mile' of disinflation, particularly in labor-intensive sectors, could be a bumpier ride than markets anticipated."

In contrast, prices for final demand goods were flat in December, following a 0.8% rise the prior month. A 1.4% drop in energy costs and a 0.3% decline in food prices contributed to the stall. Analysts point to easing supply chains and the fading direct impact of past tariffs.

"The gap in price increases between tariff-exposed and non-tariff exposed goods has narrowed considerably," noted Grace Zwemmer, Associate Economist at Oxford Economics. "With much of the tariff pass-through to prices behind us, we expect goods inflation to ease this year."

Over the past 12 months, the headline PPI rose 3.0%, holding steady from November's rate and slightly above consensus expectations.

The report, delayed from its original January 14 release date due to the recent federal government shutdown, adds a new layer of complexity to the inflation picture. Earlier consumer price data for December showed headline inflation holding steady, while core inflation moderated.

The Federal Reserve, which held interest rates steady this week, is closely monitoring such data as it determines the timing of potential rate cuts. While the labor market shows signs of stabilization, resilient service-sector inflation suggests the path to the Fed's 2% target may not be straightforward.

Market Voices:

• David Chen, Portfolio Manager at Clearwater Capital: "This is a reminder that the inflation fight isn't over. The Fed's patience is being tested. While one month doesn't make a trend, it certainly supports the 'higher for longer' argument on rates, at least for the next few meetings."
• Sarah Jenkins, Small Business Owner (Retail): "We're getting squeezed from both sides. Wholesalers are charging us more, but consumers are pushing back on higher prices. My margins are thinner than they've been in years. The Fed needs to get this under control."
• Professor Alan Reid, Economic Policy Institute: "The focus on trade margins is key. This isn't just about raw input costs; it's about pricing power and profits in the distribution layer. It suggests some sectors still feel confident passing costs along, which could delay broader disinflation."
• Janet Rivera, Consumer Advocate: "Enough with the soft-landing champagne corks popping on Wall Street. This data shows inflation is still burning a hole in the pockets of regular Americans. The Fed needs to stop worrying about Wall Street and keep the pressure on until these service prices truly break."