US Producer Inflation Surges 0.5 Per Cent in January, Dampening Interest Rate Cut Expectations

Producer prices in the United States rose higher than anticipated in January 2026. The increase was driven by surging service costs and widening profit margins among businesses, which have begun passing import tariff burdens to consumers.

The US Department of Labour reported that the Producer Price Index for final demand increased 0.5 per cent in January. The December figure was revised to 0.4 per cent. A Reuters survey had previously projected an increase of 0.3 per cent.

On an annual basis, the Producer Price Index rose 2.9 per cent through January. This figure slowed slightly from 3.0 per cent in December owing to high base effects from the previous year.

Core Producer Price Index, which excludes food and energy, surged 0.8 per cent in January following a 0.6 per cent rise in December. On an annual basis, core producer inflation reached 3.6 per cent.

“Wider margins for producers could add to the potential for higher consumer costs in the coming months as companies pass along increased service costs,” said Ben Ayers, senior economist at Nationwide.

“Given that core inflation remains elevated and the labour market has recently strengthened, we expect the Federal Reserve will continue to delay raising interest rates during the upcoming March meeting,” he added.

January’s pressure primarily originated from the services sector. Service prices surged 0.8 per cent. The increase was driven by a 2.5 per cent jump in trade services, reflecting changes in wholesale and retail merchant margins.

Wholesale margins for professional and commercial equipment jumped 14.4 per cent. This condition is viewed as an indication that companies are passing along import tariff burdens.

Prices also rose in wholesale chemicals, cable telecommunications services, retail health and beauty goods, and retail food and alcoholic beverages. Transportation and warehousing services increased 1.0 per cent.

“Last month’s issues appear to be tariff-related,” said Paul Ashworth, chief North American economist at Capital Economics.

“If we exclude trade and transportation, other core service prices were flat,” he noted.

Several components entering the Personal Consumption Expenditures inflation calculation, which serves as the Federal Reserve’s 2 per cent inflation target benchmark, also experienced increases.

Domestic airfares increased 2.6 per cent. Portfolio management costs rose 1.5 per cent. Doctor service fees jumped 0.8 per cent. Hospital inpatient costs rose 0.2 per cent, whilst outpatient care fell 0.9 per cent. Wholesale hotel and motel rates fell 4.1 per cent.