PPI Unexpectedly Fell 0.1% in December

Key Points

• December PPI falls by 0.1%, continuing downward trend.
• Diesel prices plummet, but gasoline and services rise.
• Core PPI’s uptick contrasts with overall PPI decline.

Overview of December’s PPI

In December, the Producer Price Index (PPI) for final demand in the U.S. dropped by 0.1%, marking a continuation of the downward trend observed since October. This fall contrasts with the unadjusted 1.0% rise in the index for 2023, following a 6.4% increase in 2022.

Decomposing Final Demand

December’s decrease primarily stemmed from a 0.4% decline in final demand goods, influenced notably by a 1.2% fall in final demand energy prices. Final demand services, however, remained unchanged. Notably, the index for final demand less foods, energy, and trade services rose by 0.2% in December, following modest increases in the previous two months.

Detailed Product Analysis

The drop in final demand goods in December was significantly influenced by a 12.4% plunge in diesel fuel prices. This was somewhat offset by a 2.1% increase in gasoline prices. In the realm of final demand services, while overall prices remained stable, certain sectors like securities brokerage and investment advice saw a 3.3% increase.

Contrasts with Core PPI

Despite the overall dip in the PPI, core PPI, which excludes volatile food, energy, and trade services, exhibited an uptick, rising by 0.2% in December. This figure indicates an underlying firmness in prices away from more volatile sectors, marking a 2.5% increase for 2023 compared to the 4.7% rise in 2022.

Short-Term Forecast

The current PPI data, with its mix of declining final demand goods prices and steady core PPI figures, suggests a bearish outlook in the short term. The significant drop in prices for key commodities like diesel fuel, coupled with the unchanged final demand services, points towards a potential easing of inflationary pressures. However, the gradual increase in core PPI indicates underlying price stability. Traders should closely monitor upcoming economic indicators for more nuanced market direction.