US jobless claims drop while producer prices push higher
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News: US producer prices rose 0.4% in January, a touch higher than the 0.3% expected by economists polled by Reuters, reinforcing concerns that inflation pressures—amid tariffs and other policy shifts—could delay Federal Reserve interest rate cuts.
The numbers: The rise came after an upwardly revised 0.5% increase in December, the Bureau of Labor Statistics said. Year-on-year, the producer price index (PPI) increased 3.5%.
Goods prices rose 0.6% during the month, led by a 1.7% jump in energy and a 1.1% rise in food, including a 44% surge in egg prices.
Services increased 0.3%, with a 5.7% rise in accommodation costs accounting for more than a third of the gain.
Several components that feed into the Federal Reserve’s preferred Personal Consumption Expenditures (PCE) price index showed declines, including most healthcare items and airfares. Excluding food and energy, the PPI climbed 0.3%.
Meanwhile, separate data showed initial claims for US state unemployment benefits fell by 7,000 to 213,000 for the week ending 8 February, with continuing claims also falling to 1.85 million.
The context: The data follows a consumer price index (CPI) release a day earlier showing inflation unexpectedly accelerating at the highest rate since March 2023.
The data led financial markets to push back expectations for Federal Reserve rate cuts, with some economists suggesting no further cuts in 2025 due to inflationary pressures from tariffs on imports and potential labour shortages from mass deportations.
Layoffs have remained historically low, but job opportunities have become less abundant than they were a year ago, as businesses take a cautious approach to policy changes.
On Wednesday (Thursday AEDT), a federal judge ruled the unprecedented downsizing of the US federal workforce could proceed, as some agencies had already begun laying off recent hires without full job security.
What they said: "The Fed will not see any argument for pushing interest rates lower, sooner, in today's figures," said Carl Weinberg, chief economist at High Frequency Economics.
"However, there is no reason to expect the Fed to debate hiking rates in these figures either."
Paul Ashworth, the chief North America economist at Capital Economics, said in a note that "the components that feed into the Fed’s preferred PCE price measure were, on the whole, very tame. Overall, better news than yesterday on price inflation, but core PCE still comes in well above the 2% target."
The sources: US Department of Labor, US Bureau of Labor Statistics, Reuters, Bloomberg
