U.S. producer prices increased solidly in January, offering more evidence inflation was picking up again and strengthening financial market views that the Federal Reserve would not be cutting interest rates before the second half of the year.

The producer price index for final demand rose 0.4% last month after an upwardly revised 0.5% gain in December, the Labor Department's Bureau of Labor Statistics (BLS) said on Thursday. Economists polled by Reuters had forecast the PPI rising 0.3%. In the 12 months through January, the PPI advanced 3.5% after increasing 3.3% in December.

The report followed news on Wednesday that consumer prices accelerated by the most in nearly 1-1/2 years in January, dimming hopes that the U.S. central bank would resume cutting rates in June. Financial markets now expect a rate reduction in September, though some economists believe the window for further policy easing has closed, citing strong domestic demand and a stable labor market.

Fed Chair Jerome Powell told lawmakers on Wednesday "we are close but not there on inflation," adding "we want to keep policy restrictive for now."

The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, having reduced it by 100 basis points since September, when it launched its policy easing cycle. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.

President Donald Trump's fiscal, trade and immigration policies are seen fanning inflation. A 25% tariff on goods from Canada and Mexico was suspended until March. But a 10% additional tariff on Chinese goods went into effect this month.

With January's PPI report, the BLS updated weights to reflect price movements in 2024, and seasonal adjustment factors, the model that the government uses to iron out seasonal fluctuations from the data.