Prime Highlights:
Producer Price Index (PPI) increased by 0.2% in December, lower than the expected 0.4% rise.
Core PPI, excluding food and energy, remained flat, contrasting with a forecasted 0.3% increase.
The annual PPI rose by 3.3%, significantly higher than the 1.1% increase in 2023.
Key Background:
Wholesale prices, as measured by the Producer Price Index (PPI), saw a modest increase of 0.2% in December, lower than the expected 0.4% rise and a slowdown from the 0.4% gain observed in November. The Bureau of Labor Statistics report, released on Tuesday, indicated a cooling of inflationary pressures within the wholesale sector, which could influence the Federal Reserve’s decision-making on interest rates.
The core PPI, which excludes volatile food and energy costs, remained unchanged in December, contrary to the forecasted 0.3% rise. When excluding food, energy, and trade services, the measure increased by just 0.1%. On an annual basis, the headline PPI rose by 3.3% in 2024, a substantial increase compared to the 1.1% rise recorded in 2023.
The increase in goods prices was primarily driven by a 9.7% surge in gasoline prices, though this was partially offset by a 14.7% drop in prices for fresh and dry vegetables. Services prices remained stable, despite a notable 7.2% increase in passenger transportation costs, which was counterbalanced by lower prices for traveler accommodations. The data provided a boost to stock market futures, which rose in response to the report, while Treasury yields eased following a period of higher volatility early in the year.
This report is the first of two key inflation readings this week that will play a role in determining the Federal Reserve’s next steps on interest rates. On Wednesday, the Bureau of Labor Statistics will release the Consumer Price Index (CPI) report, which is expected to show 0.3% monthly gains in both the headline and core readings. While markets currently expect the Fed to hold rates steady during its January meeting, future inflation data and comments from Federal Reserve officials, especially Chairman Jerome Powell, will likely provide clearer guidance on potential rate moves for the remainder of 2025.
