The U.S. Producer Price Index came in lower than expected for January, suggesting the Fed can stay on the sidelines for a while.

The U.S. PPI just 0.1% in January, despite food prices increasing by 0.8% and energy rising by 0.1%. The core rate was down 0.1% excluding those items. “The rise in producer costs is quite modest particularly following three straight months of sharp declines. As well, the nudge upward in energy comes after three months when prices fell by a cumulative 13%,” says BMO Nesbitt Burns. “Reinforcing the view that there is little upward pressure on inflation, producer prices fell 2.6% from year-ago levels, the largest decline since February 1950. Core prices are up just 0.3% in the past year.”

CIBC World Markets says that although producer prices didn’t fall further in January, “they still provided a substantial counterweight to services inflation in the US economy”. It says that, “Sustained low prices on the goods side of the economy will help keep downward pressure on CPI, but our expectations for a lower core CPI now largely rest on the lagged impact of slower services prices.”

“Producer prices continue to point to an easing in inflationary pressure, a trend we expect to be maintained in the near term, as the ongoing slide in factory usage limits firm pricing power,” notes BMO. “Although the Fed has likely finished cutting rates, there is little in this report to suggest a looming inflationary threat that would require higher rates in the near future.”