Producer Prices Rise 2.9% YoY in January 2026, Core Up 3.4% as Services Surge

Producer prices at the final demand level rose 0.5 percent in January 2026, the Bureau of Labor Statistics reported, accelerating from 0.4 percent in December and 0.2 percent in November. On a 12-month basis, the headline final demand index climbed 2.9 percent — a notable uptick from the 3.0 percent pace that had held for the prior three months. Beneath the surface, the January print told two very different stories: a sharp surge in services margins versus a broad retreat in goods prices driven almost entirely by energy deflation.

Headline vs. Core: A Widening Divergence

The core measure — final demand less foods, energy, and trade services — rose 0.3 percent in January, marking its ninth consecutive monthly increase. Over the 12 months ended in January, core producer prices advanced 3.4 percent, well above the headline 2.9 percent pace and a signal that underlying inflation pressure at the producer level remains stubbornly elevated. This divergence matters: the headline softness is almost entirely a function of energy prices pulling goods lower, while the core trend reflects genuine, sticky cost pressures in the services economy.

The seasonal adjustment recalculation that took effect with this release modestly revised prior months — for example, December's headline was revised from 0.5 percent to 0.4 percent — but these adjustments were minor and did not alter the directional narrative. All indexes for September through December 2025 were recalculated to incorporate late respondent reports, a routine process.

Services Drive the Headline — Goods Pull Back

Final demand services surged 0.8 percent in January, the largest monthly gain since July 2025, and were the primary engine of the headline increase. The outsized move was concentrated in trade services margins, which jumped 2.5 percent — the single largest contributor. Within that category, professional and commercial equipment wholesaling margins spiked 14.4 percent, accounting for more than 20 percent of the overall services increase. Transportation and warehousing services added 1.0 percent, while core services (excluding trade, transportation, and warehousing) were unchanged.

On the goods side, final demand prices fell 0.3 percent — the largest monthly decline since March 2025. Energy prices dropped 2.7 percent, with gasoline alone accounting for nearly 80 percent of the goods decline after falling 5.5 percent. Food prices at the final demand level also retreated 1.5 percent, pulled lower by chicken eggs, fresh fruits, and melons. Stripping out foods and energy, final demand goods ex-food and energy actually rose 0.7 percent, lifted by a 15.5 percent jump in search, detection, navigation, and guidance systems prices and gains in nonferrous metals and pork.

This goods-versus-services split is structurally important. Goods prices are volatile and heavily influenced by energy and agricultural commodity swings; the January decline in headline goods prices is largely a transitory energy effect. Services inflation, by contrast, is stickier — and the 0.8 percent monthly surge there is a more durable signal.

Pipeline Pressures: Uneven Upstream Cost Dynamics

Intermediate demand data presented a mixed picture of upstream pipeline pressures. Processed goods for intermediate demand were unchanged in January, as a 0.5 percent gain in processed materials less foods and energy offset a 2.0 percent drop in processed energy goods and a 0.6 percent decline in processed foods and feeds. On a 12-month basis, processed intermediate goods are up 2.6 percent — moderate and not yet alarming.

Unprocessed goods for intermediate demand fell 0.5 percent after a 1.9 percent advance in December, driven by a 3.5 percent drop in unprocessed foodstuffs and feedstuffs (raw milk alone fell 9.8 percent). Over the past 12 months, unprocessed goods prices have fallen 6.1 percent — the largest annual decline since September 2024 — suggesting that raw material deflation is actively tempering upstream cost pressures.

The production-flow breakdown by stage tells a more nuanced story. Stage 4 intermediate demand (closest to final demand) rose 0.4 percent for the ninth consecutive increase, with the 12-month rate running at 3.8 percent — the hottest of any stage. Stage 1 intermediate demand (furthest upstream) gained 0.6 percent, the largest advance since July 2025, with its 12-month rate at 4.0 percent. Stage 2 intermediate demand edged up just 0.1 percent and is down 0.9 percent over 12 months. The divergence between Stage 1 and Stage 4 suggests cost pressures are building at both ends of the supply chain but remain relatively contained in the middle stages.

Services for intermediate demand rose 0.3 percent for the fifth consecutive month, with the 12-month rate reaching 2.9 percent — the highest since December 2024. Trade services margins for intermediate demand jumped 1.6 percent, with chemicals and allied products wholesaling surging 8.4 percent accounting for half of the services gain.

Year-Over-Year Trend and PCE Implications

At 2.9 percent year-over-year for headline final demand, producer inflation is running above the pace seen through most of mid-2025, when the 12-month rate dipped as low as 2.4 percent in April and June. Core producer inflation at 3.4 percent annually has now held above 3.0 percent for three consecutive months, reversing the disinflation trend that characterized the first half of 2025.

For the upcoming PCE price index release, the January PPI print carries important signals. Several PPI components flow directly into PCE calculations. The unchanged reading for services less trade, transportation, and warehousing at the final demand level is a modestly favorable signal for core PCE healthcare and financial services categories. However, the sharp jump in trade services margins — particularly in professional equipment wholesaling — could feed into PCE's portfolio management and financial services components. Transportation and warehousing services rising 1.0 percent may exert modest upward pressure on airfare-related PCE inputs. On balance, the January PPI is consistent with a core PCE reading that remains above the Fed's 2 percent target, with services-side stickiness the dominant concern.

A note on data collection: the Federal government shutdown in October and November 2025 delayed PPI price-update request transmissions. Price requests for the January 13 pricing date were sent to respondents on January 27. The BLS confirmed that the January response rate was within the normal range and that no modifications to methodology were required. The shutdown will, however, delay the February 2026 PPI release, now rescheduled for March 18, 2026.

The February PPI release on March 18 will be the first key test of whether the January services surge — particularly the 2.5 percent jump in trade services margins — was a one-month anomaly or the beginning of a re-acceleration in services-side producer inflation. A second consecutive month of trade services margin gains above 1.5 percent would significantly strengthen the case that core producer inflation is re-accelerating above its 2025 trend.