The January Producer Price Index landed with a predictable media spin: “hotter than expected” and therefore proof that tariffs, Trump, and the so-called “new protectionism” are reigniting inflation. That narrative collapses under even modest scrutiny of the underlying data.
Start with the topline. Total PPI rose 0.5 percent in January, above the 0.3 percent consensus and following a 0.4 percent increase in December. On a year-over-year basis, producer prices are up 2.9 percent. That’s above expectations—but critically, it is still well below the 3.8 percent pace recorded in January 2025. In other words, inflation at the producer level remains materially cooler than it was a year ago.
Now look beneath the hood.
Final demand goods prices actually fell 0.3 percent in January. Energy goods dropped 2.7 percent and food prices fell 1.5 percent. Those are not the numbers of an overheating goods economy. They are the numbers of easing pipeline pressure.
The real action was in services, which rose 0.8 percent. Within that category, trade services margins — a notoriously volatile component of PPI — jumped 2.5 percent after rising 1.8 percent in December. That is a margins story, not a commodities story. It reflects wholesaler and retailer spreads, not raw input cost shocks.
What exactly are “trade services margins”? In the PPI framework, they do not measure the price of goods themselves. They measure the difference between what wholesalers and retailers pay for merchandise and what they sell it for — in other words, markups. When that index jumps 2.5 percent in a single month, following a 1.8 percent increase the month before, it typically reflects changes in pricing power, inventory management, promotional cycles, or seasonal resets in spreads. It can also reflect firms restoring margins after prior compression.
What it does not automatically signal is a fresh surge in upstream production costs. If steel, semiconductors, oil, or imported intermediate inputs were spiking due to tariff pass-through, that pressure would first appear in goods prices. Instead, final demand goods fell. That tells us the January acceleration was concentrated in distribution spreads — the commercial layer between producer and consumer — rather than in factory-gate or commodity costs.
In short, this is a services-side markup adjustment, not evidence of a new supply-chain inflation shock. Historically, shifts in trade services margins tend to reverse within a quarter or two and show only limited pass-through into consumer prices unless accompanied by sustained goods cost pressure.
Core PPI—stripping out food, energy, and trade services—rose 0.3 percent, exactly in line with expectations. On a 12-month basis, core stands at 3.4 percent, slightly below its January 2025 rate. That is stability, not acceleration.
The three-month annualized data add important context. Total PPI is running at a 4.7 percent annualized rate, up from 2.2 percent in October. Core PPI, by contrast, has slowed from a 4.9 percent three-month annualized pace in October to 3.4 percent in January. The momentum is not broad-based. It is uneven and concentrated.
This matters because the tariff-equals-inflation argument rests on the assumption that goods prices are surging across the production pipeline. They are not. Energy is falling. Food is falling. Final demand goods overall are down.
If tariffs were mechanically cascading through supply chains, we would expect to see a synchronized lift in goods inflation. Instead, what we see is margin volatility in trade services—precisely the component most sensitive to short-term inventory cycles and pricing adjustments.
The broader macro context reinforces this reading. Both total and core PPI remain dramatically below their 2022 peaks and are hovering in the 3 percent range. That is consistent with normalization from the Biden-era inflation shock, not a resurgence.
Markets and media will seize on the 0.5 percent headline print. But serious analysis demands disaggregation. Producer inflation is no longer being driven by energy spikes or supply-chain chaos. It is not showing a tariff-induced goods surge. Core pressures are steady, not spiraling.
Inflation psychology remains scarred from the 2021–2023 episode. Every upside surprise is treated as confirmation of a new inflation regime. The data here do not justify that conclusion.
January’s PPI report tells a more nuanced story: cooling goods, volatile margins, stable core. That is not a reacceleration. It is an economy still digesting past shocks while moving, unevenly but discernibly, toward price stability.
