Wholesale prices rose less than expected in December, a positive sign for the economy amid recent market fears that inflation isn’t falling as quickly as hoped to the Federal Reserve’s 2% target.
Tuesday’s report from the Bureau of Labor Statistics showed that its producer price index (PPI) — which tracks the price changes companies see — rose 3.3%% from the year prior, up from the 3% seen in November but below the 3.5% increase economists had projected. On a monthly basis, prices increased 0.2%, below the 0.4% increase economists had expected.
Excluding food and energy, “core” prices increased 3.5% year-over-year, above November’s 3.4% increase. Economists had expected an increase of 3.8%. Meanwhile, month-over-month core prices were unchanged, below the 0.3% increase economist had expected and the 0.2% increase seen last month.
Capital Economics North America economist Thomas Ryan noted the release “seems encouraging” but it also “masks some price jumps in a few of the key components which feed directly into the Fed’s preferred core PCE inflation gauge.” Notably, domestic and international airfare prices, which feed into the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, increased nearly 8%.
Morgan Stanley’s economics team moved up their core PCE inflation forecast in December following the release. The firm now believes prices increased 0.23% month-over-month in December, up from the 0.21% it projected prior to the release.
Thursday’s PPI reading comes one day ahead of a highly anticipated release of the December Consumer Price Index (CPI). Economists expect that print to show little progress with core inflation anticipated to come in at 3.3% on an annual basis for the fifth straight month. More detailed forecasts on PCE will be updated following the CPI release on Wednesday.
A recent hot labor report has economists largely believing signs of cooling inflation in the coming months will be required for the Fed to cut interest rates further this year.
As of Tuesday morning, markets were pricing in just a 3% chance the Fed cuts rates at its January meeting, per the CME FedWatch Tool. Markets don’t see a more than 50% chance the Fed cuts rates at a meeting until at least the June meeting.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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