Inflation at the wholesale level was moderate last month. But the latest government figures provide mixed signals that reflect possible turbulence beneath the calm.
The Labor Department said Friday that the Producer Price Index, measuring inflation pressures before they reach the consumer, rose 0.3% in January. The closely watched core PPI--which excludes volatile energy and food costs--was milder, rising just 0.2%.
The figures were smaller than the 0.4% economists had predicted. But analysts noted that December figures were revised upward and also cautioned that higher prices at earlier stages of production below the wholesale level are worrisome.
Prices for intermediate and crude goods rose 1%. Excluding energy and food, raw materials were up 3%.
Financial markets were mixed after an initial rally. The Dow Jones industrial average was down about 6 points by early afternoon and bond prices also fell.
Analysts said the Federal Reserve, which has been battling inflation by raising interest rates, likely will remain on the sidelines for now.
But by mid-spring, they said, the Fed may raise short-term rates for the eighth time since last February.
"These statistics clearly keep the Fed on guard," said Marilyn Schaja of Donaldson, Lufkin & Jenrette Securities Corp. "The threat of inflation would still exist," she said.
"A few strong economic reports might mean another move up" in interest rates, said Kermit Baker of Cahners Economics in Newton, Mass.
The Federal Reserve has raised a key short-term rate seven times in 12 months--from 3% to 6%.