Wholesale costs rose 0.2% in December, lower than anticipated

A measure of wholesale prices rose less than expected in December, indicating pipeline inflation pressures are easing year after year, although it probably wasn't enough to provoke another Federal Reserve interest rate hike soon.

The producer price index rose just 0.2% for the month, less than the 0.4% rise in November and below the Dow Jones Consensus estimate for a 0.4% gain, a Labor Statistics report said on Tuesday.

Excluding food and energy, the so-called core PPI was flat compared to the forecast for a 0.3% increase. Excluding food, energy and commercial services, the measure rose just 0.1%.

Annually, the headline PPI rose 3.3% for the full year, well ahead of 2023's 1.1% increase.

Goods prices rose 0.6%, boosted by a 9.7% increase in gasoline prices. The upward movements in several food and energy-related measures were offset by a price gain of 14.7% for fresh and dry vegetables.

On the services side, prices were flat despite a 7.2% increase in passenger transportation offset by a drop in traveler accommodation prices.

Stock market futures shot higher after the report, while Treasury yields rose sharply to lower in the early days of 2025.

The release is the first of two key inflation readings this week that will factor into the Federal Reserve's interest rate decision later in January.

On Wednesday, the BLS releases its most closely watched consumer price index reading. This is expected to show 0.3% monthly gains for both the headline and core readings, as well as respective annual inflation rates of 2.9% and 3.3%.

Although the central bank focuses more on the Commerce Department's Personal Consumption Price Index as the main inflation gauge, the PPI and CPI readings feed into this calculation.

Market prices are overwhelmingly on the Fed, which remains on hold at the Jan. 28-29 meeting. However, policymakers and Chairman Jerome Powell could be laying the groundwork when it comes to tariffs.

Fed funds futures pricing on Tuesday only implied a rate cut the rest of the year; Bank of America economists on Monday said the Fed could do so this year. Fed officials at their December meeting, held in two cuts this year, suspected quarter-percent point moves.

Don't miss these insights from CNBC Pro

Comments are closed.