U.S. Core Producer Prices Decline for First Time in a Year

(Bloomberg) -- A key measure of U.S. producer prices unexpectedly fell in December and the overall gauge declined more than forecast amid lower oil prices, signaling potential inflation pressures in the economy are contained.

Excluding food and energy, producer prices decreased 0.1 percent from the prior month, the first decline in a year, according to a Labor Department report Tuesday. The overall producer-price index fell 0.2 percent from November after a 0.1 percent rise. The Bloomberg survey median called for an increase in the core PPI and a drop in the main index.

On an annual basis, core producer-price gains held steady at 2.7 percent -- missing forecasts for 3 percent -- while the broad gauge rose 2.5 percent, also unchanged from the prior reading. Food and energy prices are typically volatile.

U.S. Core Producer Prices Decline for First Time in a Year

Key Insights

  • The PPI figures, which measure wholesale and other selling costs at businesses, suggest prices are firming up only gradually. They’re also in line with consumer-price data that showed a drag from energy costs while core inflation held steady, giving the Federal Reserve little urgency to raise interest rates soon.
  • Within final demand PPI for goods, energy costs fell 5.4 percent from November, led by a 13.1 percent drop in gasoline prices, while food costs climbed 2.6 percent.
  • Producer costs excluding food, energy, and trade services -- a measure preferred by economists because it strips out the most volatile components -- softened to an unchanged month-on-month reading and the annual gain held for a third straight month at 2.8 percent.
  • The PPI for services slipped 0.1 percent, the first decline in four months, weighed down by transportation and warehousing and narrower margins for retailers and wholesalers. That dragged down the core index.

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  • About 80 percent of the monthly decrease in the broader PPI gauge came from a 0.4 percent decline in goods prices.
  • Bloomberg’s survey of economists had called for a 0.2 percent rise in core PPI and a 0.1 percent drop for the broader measure.
  • While the CPI is considered a more important indicator of inflation, producer prices help provide insights into the direction of input costs, and analysts monitor PPI to assess how the gains will filter through to consumers.

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