Wholesale Inflation Cools in December, Easing Concerns
A surprise drop in food costs and flat services prices helped to calm inflation fears in December, according to the latest Bureau of Labor Statistics report. The producer price index for final demand rose 0.2% from the previous month, falling short of economists’ expectations of a 0.4% gain.
Food Prices Take a Tumble
A 0.1% decline in food prices was driven by a sharp 15% drop in vegetable costs. Egg prices, which had skyrocketed 56% in November due to a bird influenza outbreak, barely budged last month. Meanwhile, energy prices surged 3.5%, contributing to a 0.6% increase in overall goods prices.
Services Prices Remain Flat
Services prices were unchanged, marking one of the tamest readings of 2024. This was largely due to declines in margins, indicating that businesses may be absorbing higher costs rather than passing them on to consumers.
Inflation Expectations Soften
The PPI report’s mixed results may help to temper inflation expectations, which had been rising in recent weeks amid robust demand and concerns over potential tariffs on imported goods. Treasury yields fluctuated, while S&P 500 index futures remained higher and the dollar declined following the report’s release.
Fed Watch
Economists closely follow the PPI report because several of its components feed into the Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index. While some categories showed modest gains, others were unchanged or declined, suggesting that inflation pressures may be easing.
Commodity Prices on the Rise
Despite the cooling of wholesale inflation, commodity prices continue to pick up steam. Crude oil futures reached a five-month high on Monday, while corn futures climbed to a seven-month high. These advances follow sharp gains in cocoa and coffee prices late last year.
What’s Next?
The PPI report sets the stage for the more closely watched consumer price index, due out on Wednesday. Investors and consumers will be watching closely to see if the cooling of wholesale inflation translates to lower prices at the consumer level.
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