January Producer Price Index Rises

Date: February 19, 2016

Federal Reserve Monitoring Inflation To Determine Interest Rates

According to the latest Labor Department Producer Price Index data, January PPI rose 0.1 percent, following a 0.2 percent decline in December. Economists had expected the PPI to fall 0.2 percent, Reuters reported. For the 12 months period, PPI fell 0.2 percent, less than the 0.6 percent forecast by economists. Core PPI, which excludes the volatile energy and food categories, increased 0.4 percent in January and 0.6 percent on an annual basis. Bloomberg News reported that higher food costs “more than made up for the plunge in energy.” Societe Generale economist Brian Jones said, “Over the medium term, depending on how long you take that out, hitting the 2 percent target should be pretty achievable.” In a similar assessment, the AP reported that while steep declines in energy prices coupled with a strengthening dollar have kept costs low over the last two years, there is some inflation pressure. Jennifer Lee, senior economist at BMO Capital Markets, said “The increase in core prices at the wholesale level could attract attention at the Federal Reserve, where a number of officials have said they will be watching for signs of higher inflation in determining when to raise a key interest rate again.” Still, consumer-level inflation pressures are relatively low, with consumer prices up a total of 0.7 percent for all of 2015, the smallest annual rise in prices in seven years.

What This Means For Small Businesses

Despite the relatively modest inflation pressures reflected in the latest Producer Price Index, small businesses aren’t seeing the growth they’d like to see in order to feel comfortable about overall economic conditions. The NFIB’s latest Small Business Economic Trends report showed that small business owners felt less optimistic in January about business conditions in the next six months as well as overall sales. NFIB Chief Economist William Dunkelberg said, “Overall, it is unlikely that anything will occur that will raise the spirits of small business owners.” Small businesses will likely continue to watch for signs of economic improvement, including possible Fed activity.

Additional Reading

24/7 Wall Street also covered the latest PPI reading.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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