US producer prices rose less than expected in December as higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward trend.
The moderation in producer inflation reported by the Labor Department this week did not change the view that the Federal Reserve would not cut interest rates again before the second half of this year amid labor market resilience and the threat of potentially inflation-boosting tariffs on imported goods by President-elect Donald Trump’s incoming administration.
“Better than expected is not necessarily what the Fed wants to see before easing monetary conditions into a fast-growing economy, with tariffs and tax cuts on the agenda of the incoming administration,” said Carl Weinberg, chief US economist at High Frequency Economics.
The producer price index for final demand rose 0.2 per cent last month after an unrevised 0.4 per cent advance in November, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI would climb 0.3 per cent.
In the 12 months through December, the PPI accelerated 3.3 per cent, the most since February 2023, after increasing 3.0 per cent in November. The surge in the year-on-year rate reflected lower prices last year, especially for energy products, that dropped out of the calculation.
Inflation increased 3.3 per cent in 2024 after rising 1.1 per cent in 2023.
The report followed news last week of a sharp rise in nonfarm payrolls in December and a decline in the unemployment rate, which led economists to expect that the US central bank would keep rates unchanged through June.
Bank of America Securities now believes the Fed’s easing cycle is over. Goldman Sachs expects two rate cuts this year, in June and December, a number revised down from three.
The central bank kicked off its easing cycle in September and has lowered its benchmark overnight interest rate by 100 basis points to the current 4.50 per cent-4.75 per cent range.
The last reduction occurred in December when policymakers also projected two rate cuts this year instead of the four they had forecast in September.
WHOLESALE FOOD PRICES FALL
US Treasury yields slipped on the data. The dollar eased against a basket of currencies.
Wholesale goods prices increased 0.6 per cent in December after shooting up 0.7 per cent in the prior month. They were driven by a 3.5 per cent jump in the prices of energy products. Food prices, however, dipped 0.1 per cent after accelerating 2.9 per cent in November.
Wholesale egg prices rose 0.5 per cent after surging 55.6 per cent in November. Excluding the volatile food and energy components, goods prices were unchanged for the first time since March. That followed a 0.2 per cent gain in the so-called core goods in November.
Services prices were flat following a 0.3 per cent increase in November. Transportation and warehousing services prices rose 2.2 per cent, with the cost of airline fares soaring 7.2 per cent. Portfolio management fees rebounded 0.2 per cent, but the cost of hotels and motel rooms decreased 6.9 per cent after declining 1.2 per cent in November.
Healthcare costs were mostly benign, with prices for physician care rising 0.2 per cent. The cost of hospital inpatient care was unchanged while that of dental care edged up 0.1 per cent.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among the components that go into the calculation of the Personal Consumption Expenditures (PCE) Price Index, excluding food and energy.
Based on the PPI data, economists estimated the PCE price index, excluding food and energy, rose 0.2 per cent in December after nudging up 0.1 per cent in November. That estimate could change after the release of consumer price data for December on Wednesday.
The so-called core PCE inflation is one of the measures tracked by the Fed for monetary policy.
The narrower measure of PPI, which strips out food, energy and trade, ticked up 0.1 per cent for a second straight month. Core PPI increased 3.3 per cent on a year-on-year basis after advancing 3.5 per cent in November.
Click here to change your cookie preferences