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First Cut: Final Demand PPI in January points to tame inflation driven by services

The Final Demand Producer Price Index (PPI) was up 0.5% month-over-month in January and up 2.1% year-over-year. Core Final Demand PPI – excluding food, energy, and trade services – rose 0.4% from the prior month and was up 1.5% compared to the year ago month. The PPI excluding food and energy only was up 0.3% in January from December and was up 0.7% from a year ago. The data included annual revisions released on February 14.

The Bureau of Labor Statistics said, “In January, 90 percent of the increase in the final demand index is attributable to prices for final demand services, which climbed 0.7 percent. The index for final demand goods inched up 0.1 percent.” It is clear that in the broader picture, prices for services continue to be the main source of upward pressure. The FOMC’s preferred measure of inflation is the PCE deflator. The CPI is also commonly cited. Final Demand PPI isn’t a big driver of monetary policy decisions. However, these numbers back up the other inflation data that indicate inflation remains tame.

Food prices (weight 5.733) were up 0.2% in January from December and up 2.7% compared to a year earlier. The increase was concentrated in crude finished consumer foods which rose 1.0%.

Energy prices (weight 5.382) were down 0.7% on prices for finished consumer energy which declined 0.8% and government purchased energy which was down 0.3%. Compared to January 2019, energy prices were up 6.2%.

Final demand services (weight 65.476) were up 0.7% in January from December. Final demand trade services (weight 20.213) were up 1.2% on a gain in trade of finished goods of up 1.4%. Services overall were up 2.0% compared to the year-ago month.

Final demand in construction was up 0.8% month-over-month in January and up 3.7% compared to January 2019.



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