Core U.S. Producer Prices Rise at Slowest Pace Since 2016

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(Bloomberg) -- A measure of underlying U.S. producer prices rose in December at the slowest pace since August 2016, indicating modest inflationary pressures.

The so-called core index of prices paid to producers, which excludes food and energy costs, increased 1.1% from the previous year, a Labor Department report showed Wednesday. The median estimate in a Bloomberg survey of economists projected a 1.3% advance. The core gauge rose 0.1% from a month earlier. The overall PPI also climbed 0.1% from November and was up 1.3% from a year prior.

Core U.S. Producer Prices Rise at Slowest Pace Since 2016

Key Insights

  • Subdued costs at the producer level can help limit consumer inflation as they enable sellers to hold the line on the prices they charge households while protecting profit margins. Persistently tame inflation encouraged the Federal Reserve to lower interest rates three times last year to help extend an economic expansion at risk of faltering because of weak global demand, corporate investment cutbacks and the imposition of tariffs.
  • Producer prices excluding food, energy, and trade services -- a measure preferred by economists because it strips out the most volatile components -- rose 0.1% from the prior month, and 1.5% from a year earlier.
  • Stocks rose as the U.S. and China prepared to sign their initial trade accord.
  • The report, which measures wholesale and other business selling costs, showed final demand services prices were unchanged in December after a 0.3% decline a month earlier. Transportation and warehousing services costs jumped 2.7% from a month earlier, the largest advance in records to December 2009.
  • Analysts watch this report to assess potential price pressures set to show up at the consumer level. A more closely-watched measure of inflation, the core consumer price index, rose 0.1% in December from a month earlier, the smallest advance in three months.

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  • The median forecast in a Bloomberg survey of economists called for a 0.2% gain in both the overall and core PPIs from a month earlier, and a 1.3% from the prior year.
  • The PPI report showed the cost of goods rose 0.3% from November, matching the previous month’s gain.
  • Energy prices rose 1.5% from the prior month and food costs declined 0.2%, the first drop since August.

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