Producer Price Inflation Rises in January 2022

In January 2022, the Producer Price Index (PPI) for final demand increased by 1.0% on a seasonally adjusted basis. This follows monthly increases of 0.9% in November 2021 and 0.4% in December 2021. On an unadjusted basis, the PPI has risen by 9.7% for the 12 months ending in January 2022.

The monthly rise of 1.0% in January equates to a compound annualized growth rate (CAGR) of 12.7%. In general, the PPI is a gauge of inflation that measures increases to input costs faced by the producers of goods and services. Because it measures price changes before they reach consumers, some analysts see it as an earlier predictor of inflation than the CPI.

High Level Detail

In January 2022, behind the overall rise of 1.0% in the PPI for final demand were increases of 0.7% for final demand services and 1.3% for final demand goods. Prices for final demand less foods, energy, and trade services increased 0.9% in January 2022. This was the largest increase in this measure since it rose by 1.0% in January 2021. For the 12 months ending in January 2022, the index for final demand less foods, energy, and trade services moved up 6.9%.

Final Demand Services Detail

As noted above, prices for final demand services were up by 0.7% in January. This was the same as in December. About 75% of the rise in January was driven by a 0.9% increase in the index for final demand services less trade, transportation, and warehousing. Margins for final demand trade services (profit margins received by wholesalers and retailers) moved up by 0.6%.

A major factor in the January increase in the index for final demand services was hospital outpatient care prices, which rose 1.6%. Other indexes that rose were: machinery and vehicle wholesaling; apparel, jewelry, footwear, and accessories retailing; traveler accommodation services; portfolio management; and truck transportation of freight. Margins in fuels and lubricants retailing were down by 9.7%. Decreases were recorded in the indexes for transportation of passengers (partial) and for physician care.

Final Demand Goods Detail

As noted above, prices for final demand goods rose by 1.3% in January. They had declined by 0.1% in December. More than 40% of the broad-based increase can be traced to a rise of 0.8% in the index for final demand goods less foods and energy. Prices for final demand energy and for final demand foods also moved higher, by 2.5% and 1.6%, respectively.

Within the final demand goods in January, the index for motor vehicles and equipment rose by 0.7%. Prices for diesel fuel, gasoline, beef and veal, dairy products, and jet fuel also increased. However, the index for iron and steel scrap fell by 10.7%. Prices for unprocessed fin fish (i.e., not including shellfish) and for natural gas also declined.

Intermediate Demand Overview

Within intermediate demand in January, prices for processed goods increased by 1.7%, the index
for unprocessed goods fell by 2.0%, and prices for services advanced by 0.4%. The 12-month increases in these measures were, respectively, 24.1%, 29.7%, and 7.3%.

Final Demand vs. Intermediate Demand

Examples of final demand goods include pharmaceutical preparations destined for personal consumption, construction machinery and equipment for private capital investment, diesel fuel and jet fuel for government, and organic chemicals for export. Examples of final demand services include consumer loan services, apparel retailing margins, passenger air transportation, wired and wireless telecommunication services for government, wholesale margins from machinery and equipment sold for capital investment, and wholesale margins from organic chemicals sold for export. Examples of final demand construction include new school construction and new hospital construction.

Intermediate demand, meanwhile, measures price changes for goods, services, and construction sold to business as inputs to production.