Wholesale Inflation Slows December Prices Rise Just 0.2%, Defying Forecasts

A measure of wholesale prices rose less than expected in December, signaling that inflationary pressures at the production level eased toward the end of the year. However, the slowdown is unlikely to prompt an immediate Federal Reserve interest rate cut.

The producer price index (PPI) increased by 0.2% in December, lower than the 0.4% rise in November and below the Dow Jones consensus estimate of 0.4%, according to a Bureau of Labor Statistics (BLS) report released Tuesday.

Core PPI, which excludes volatile food and energy prices, remained flat against expectations for a 0.3% increase. When further excluding trade services, the measure rose by just 0.1%.

On an annual basis, headline PPI rose 3.3% for 2024, significantly higher than the 1.1% gain recorded in 2023.

Goods prices increased by 0.6%, driven primarily by a 9.7% jump in gasoline prices. However, these gains were partially offset by a 14.7% decline in fresh and dry vegetable prices and other energy-related categories.

Services prices were flat overall, with a 7.2% rise in passenger transportation costs counterbalanced by declining prices for traveler accommodation.

Following the report, stock market futures rallied while Treasury yields, which had surged earlier in January, moved lower.

This release marks the first of two critical inflation reports this week that could influence the Federal Reserve's upcoming interest rate decision later in January. The Bureau of Labor Statistics is set to release its consumer price index (CPI) report on Wednesday, which is expected to show monthly increases of 0.3% for both headline and core readings, with respective annual inflation rates of 2.9% and 3.3%.

While the Federal Reserve prioritizes the Commerce Department's personal consumption expenditures (PCE) price index as its primary inflation gauge, the PPI and CPI data contribute to its overall assessment.

Market expectations currently lean heavily toward the Fed holding rates steady at its Jan. 28-29 meeting. However, policymakers, including Fed Chair Jerome Powell, may use the opportunity to outline the trajectory of monetary policy for the year ahead.

Fed funds futures pricing as of Tuesday suggests just one rate cut for the remainder of the year. Similarly, Bank of America economists indicated on Monday that they believe the Fed is likely done with rate adjustments for 2025. This aligns with projections from the Fed's December meeting, where officials anticipated two rate cuts, assuming quarter-point reductions.