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Wholesale prices soared again in January as inflation remains near record highs

In this Tuesday, June 15, 2021, file photograph, beef is displayed in the meat department at Lambert's Rainbow Market, in Westwood, Mass. Wholesale inflation in the United States surged again last month, rising 9.7% from a year earlier in a sign that price pressures remain high at all levels of the economy. The Labor Department said Tuesday, Feb. 15, 2022, that its producer price index, which measures inflation before it reaches consumers, jumped 1% from December (AP Photo/Charles Krupa)

Wholesale prices jumped last month at a rate 9.7% higher than a year ago, the Labor Department said Tuesday in another sign that inflation remains high.

The producer price index, a measure of inflation before goods reach consumers, rose 1% from December. Excluding food and energy prices, wholesale inflation rose 0.8% from the previous month and climbed 8.3% from January 2021.

The department said a 1.6% increase in outpatient health care costs was a “major factor” in the jump.

The rate was twice as high as expected by many economists, and was near a record in data going back to 2010.

Consumer prices soared 7.5% in January, the government reported last week, reaching a 40-year high that has wiped out wage gains for many workers.

Inflation is looming as a major campaign issue in the midterm elections.

“President Biden continues to be Jimmy Carter 2.0,” tweeted Sen. Ted Cruz, Texas Republican, in response to the new report.

The Federal Reserve is expected to raise a key interest rate next month in an effort to slow inflation. The move will also mean higher borrowing costs on credit cards, auto loans and home mortgages.

A 27% year-over-year spike in energy prices, including a 9.5% monthly jump in fuel oil prices and a 4.2% jump in electricity prices, drove the surge in consumer prices.

That means U.S. prices are reaching new highs for producers and consumers amid global shortages and supply disruptions, but the producers have felt the greatest increases so far.

Hans Dau, CEO of the Mitchell Madison Group consulting firm, said the “perfect storm” of pent-up demand meeting limited supply means consumer prices will likely rise further to meet the higher level of producer prices.

“Producer price inflation is likely to work itself into consumer inflation through the supply chain, indicating continuing high inflation for much of 2022,” Mr. Dau said. “With omicron waning, this trend will accelerate in the short-term, unless the Fed hits the brakes hard and triggers a recession.”

Mr. Dau added that “historically high fiscal spending and accommodative central bank policies globally” have contributed to the supply chain crisis.

“Unfortunately, it is not a transitory phenomenon and not predominantly a supply chain issue, but rather due to unparalleled fiscal and monetary expansion,” he said.

John D. Rosen, a consumer marketing expert who teaches business at the University of New Haven, agreed that the report means consumer price increases will accelerate more quickly until the Federal Reserve implements planned interest-rate hikes.

“We can expect this to flow through the economy to noticeably affect consumer prices in the near future and prompt the Fed to increase interest rates more rapidly in an attempt to tame inflation,” Mr. Rosen said.

Ryan Young, a senior fellow at the libertarian Competitive Enterprise Institute, said the Fed should consider acting even sooner than March.

“The Fed is waiting too long to act,” Mr. Young said. “It has said it will wind down its bond-buying program and raise the federal funds rate starting in March. These are the right things to do, but they should have started months ago.”

With the producer price index rising at an annualized 9.7%, well above inflation’s annualized 7.5% pace, he added that “things are likely to get worse before they get better.”

“The Producer Price Index is a leading indicator, which means it is a sign of things to come,” Mr. Young said. “While we are unlikely to reach Carter-era stagflation territory, we are getting uncomfortably close.”

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