U.S. December PPI Up 0.2%, Below Forecasts; Core Inflation Unchanged

U.S. December PPI Gains 0.2%, Easing Inflation Pressures

The U.S. Producer Price Index (PPI) rose 0.2% in December, below the 0.4% consensus estimate, according to the Bureau of Labor Statistics. The data suggests inflationary pressures at the wholesale level moderated as the year ended. A smaller-than-expected rise in core PPI reinforced this trend, boosting optimism about easing cost pressures in the pipeline.

Slower Growth in Wholesale Prices

December’s 0.2% headline PPI increase was a notable deceleration from November’s 0.4% gain. While energy prices surged 3.5%—led by a 9.7% jump in gasoline—prices for goods excluding food and energy were flat, signaling subdued underlying inflation. Food prices fell 0.1%, driven by a sharp 14.7% drop in fresh and dry vegetable costs, despite gains in fresh fruits and melons.

Core PPI, which excludes volatile food and energy prices, showed no growth in December, missing forecasts of a 0.3% increase. A narrower measure of core PPI, excluding food, energy, and trade services, rose just 0.1%, mirroring November’s modest uptick.

Service Prices Stall

Prices in the services sector were unchanged in December, following a 0.3% rise in November. Transportation and warehousing services saw a 2.2% gain, driven by a 7.2% jump in passenger transportation costs. However, these increases were offset by declines in trade service margins, including food and machinery wholesaling.

The overall flat performance in service prices and the tepid growth in core PPI suggest that inflation pressures are not accelerating across key economic sectors.

Fed’s Policy Path and Market Sentiment

The softer-than-expected PPI report may bolster expectations that the Federal Reserve will maintain its current policy stance in the near term. With headline and core wholesale price growth moderating, traders have priced in an 80% probability of no rate changes at the Fed’s March meeting. However, the market remains cautious ahead of the Consumer Price Index (CPI) release, which is expected to provide more comprehensive insights into consumer-level inflation.

Market Forecast

With wholesale inflation cooling and core PPI showing no monthly growth, near-term inflationary pressures appear limited. This supports the case for a neutral Federal Reserve stance, particularly if tomorrow’s CPI report aligns with expectations. Nonetheless, rising energy costs could introduce volatility in equities, bonds, and the U.S. dollar if inflation accelerates unexpectedly. Traders are likely to focus on upcoming inflation and employment data for more decisive signals on monetary policy.