Hotter-than-expected US wholesale inflation ramps up pressure on the Fed

WASHINGTON – U.S. wholesale prices rose faster than expected in January, fueled by a jump in service costs and heightening concerns that inflation remains persistent.

The Labor Department reported Friday that its producer price index (PPI) climbed 0.5% from December and 2.9% compared to the same period in 2025. Economists had previously forecast a more modest monthly increase of 0.3%.

Excluding volatile food and energy categories, core prices surged 0.8% for the month and 3.6% over the past year. This represents the largest annual increase in core wholesale prices since last March.

The spike was driven primarily by rising service costs, suggesting that companies are passing on expenses from President Donald Trump’s tariffs to their customers. In contrast, wholesale prices for energy and food both declined.

The report arrives even as consumer price inflation has shown signs of cooling. However, the fresh data may prompt the Federal Reserve to delay interest rate cuts, with analysts now expecting the central bank to hold rates steady at its upcoming meeting in March.

Hotter-than-expected Producer Price Index (PPI) data has effectively dashed Wall Street’s expectations for imminent Federal Reserve rate cuts. The figures underscore a persistent inflationary trend within the U.S. economy, placing the Fed in a precarious policy bind. Having implemented three rate reductions last year to bolster a softening labor market, the central bank now faces the resurgent risk of price instability.

Analysis suggests that the cost burdens of the Trump administration’s tariff policies are now being directly passed through by businesses into service sector pricing. This has introduced a layer of structural inflation that sits largely outside the reach of traditional monetary policy tools, further complicating the Fed’s mandate.

For Vietnam, a "higher-for-longer" interest rate environment in the U.S. carries significant macroeconomic implications. A sustained period of dollar strength will continue to exert downward pressure on the Vietnamese Dong, likely forcing the State Bank of Vietnam (SBV) to consider further market interventions. More critically, should the Fed maintain a restrictive stance to combat inflation, a subsequent cooling of U.S. consumer demand would directly threaten Vietnam’s export engine—particularly in key manufacturing sectors such as textiles, electronics, and furniture.

High inflation is placing a significant strain on Vietnamese-American small businesses. In communities like Little Saigon, owners in the nail salon industry and phở restaurant proprietors are facing a sharp rise in the cost of supplies and raw ingredients, which continues to erode their profit margins. These entrepreneurs are caught in a difficult position: raise prices and risk losing loyal customers, or absorb the overhead costs and settle for lower earnings. Regarding remittances, while a stronger U.S. dollar increases purchasing power when converted to Vietnamese đồng, the total amount sent back home could decline if families in the U.S. are forced to tighten their spending due to the rising cost of living.