The divided U.S. Congress is paralyzed by gridlock, with Democrats and Republicans squabbling over the debt ceiling limit. Many elected officials in the nation’s capital aren’t functioning as lawmakers. Instead, they’re creating performance art for the media.

The government may be largely dysfunctional. But inflation remains on the job.

The U.S. Bureau of Labor Statistics reported Thursday that the producer price index (PPI) rose 0.7% in January, exceeding the consensus estimate for a 0.4% increase.

The PPI for final demand in the U.S. declined to 6% on a yearly basis in January from 6.5% in December. This reading came in higher than the consensus expectation of 5.4%. The annual “core” PPI edged lower to 5.4% in the same period from 5.5%, compared to analysts’ estimate of 4.9%. On a monthly basis, the core PPI came in at 0.5%.

Federal Reserve policymakers closely scrutinize core inflation, which essentially excludes changes in volatile food and energy prices, because it more accurately depicts underlying price trends.

The PPI is a leading indicator. When producers face input inflation, the increases in their production costs are passed on to retailers and consumers.

As the chart shows, PPI for January came in hot:

The main U.S. stock market indices fell on the PPI news and closed lower Thursday as follows:

• DJIA: -1.26%
• S&P 500: -1.38%
• NASDAQ: -1.78%
• Russell 2000: -0.96%

The PPI consists of three sub-indices: crude goods, intermediate goods, and finished goods, providing a look at goods at different stages of production. Generally, an increase in crude goods cost (i.e., commodities inflation such as what’s happening now), means that intermediate goods costs will rise, and then finished goods.

The consumer price index (CPI) for January also came in this week, hotter than expected. But inflation isn’t just about empirical economic data; it also involves behavioral psychology. Despite the economic forecasting tools in our arsenal, we’re always mindful of how inflation can become a self-fulfilling prophecy.

If workers expect higher inflation, they demand higher wages and drive prices higher. Typically, when inflation expectations are on the rise, the government reacts by reducing monetary and fiscal supports or increasing interest rates. It’s an inauspicious sign, then, that inflation expectations have turned higher.

According to the latest survey from the University of Michigan, year-ahead inflation expectations among consumers rebounded to 4.2% this month, from 3.9% in January and 4.4% in December.

The survey’s five-year inflation outlook was unchanged at 2.9% for the third straight month and stayed within the narrow 2.9% to 3.1% range for 18 of the last 19 months.

In a positive development, the report also showed that U.S. consumer sentiment improved to a 13-month high in February. Considering the battering they’ve taken, consumers can be forgiven for demonstrating cognitive dissonance.

After the crises of 2021 and 2022, the road to economic stability this year won’t be fast and easy. Nor is the economy following textbook rules, due to the “black swans” of the COVID pandemic and the Russia-Ukraine war. We’ll see if the latest inflation readings are part of a persistent trend, or just statistical blips.

The political circus…

The nonpartisan Congressional Budget Office announced Wednesday that the U.S. Treasury Department’s ability to continue paying its bills and prevent the U.S. from defaulting on its debt could run out sometime between July and September if Congress doesn’t raise or suspend the limit on how much the nation can borrow.

The debt ceiling imbroglio threatens the stability of financial markets. Governing the country has become more about scoring political points and generating colorful soundbites, rather than looking out for the best interests of the public.

Odds are, someone will blink in this game of fiscal chicken. But our country’s increasingly surreal political situation is precisely why it is so critically important that you make investment moves that are resistant to headline risk.

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John Persinos is the editorial director of Investing Daily.

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