U.S Producer Prices Increase Less Than Expected 

Fed Holds Firm Amid Slower Producer Price Growth 

US producer prices saw a less than an expected increase in December, this increase was aided by the stable service prices that offset the rise in the goods costs. This establishes the fact that the inflation is still on a downward trend, even after certain stagnation has occurred in the months leading up to this. 

The Labor Department’s Bureau of Labor Statistics has stated that the Producer Price Index (PPI) for final demand has surged by 0.2% as of December after the prediction rate reached a rate of 0.4% in November. The increase predicted by economists was 0.3%, however, these estimates were at odds with the consensus of economists. 

(U.S. PPI m/m Chart, Source: Bureau of Labor Statics) 

Meanwhile, the core PPI which excluding food, energy, and trade edged up by 0.1% for the second consecutive month. On an annual basis, core PPI rose 3.3%, down from 3.5% in November. However, some economists cautioned against overinterpreting December’s modest PPI increase, noting that producer prices often soften during this month. 

(U.S. Core PPI m/m Chart, Source: Bureau of Labor Statics) 

Despite the easing in producer inflation, reported by the Labor Department on Tuesday, expectations remain that the Federal Reserve will hold off on cutting interest rates until at least the second half of the year. This is due to a strong labor market and the potential inflationary impact of tariffs on imported goods proposed by President-elect Donald Trump’s incoming administration. 

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