Wholesale prices rose less than expected in December, providing a positive signal for the economy amid recent market concerns that inflation is not falling as quickly as hoped to hit the Federal Reserve’s 2% target.
A report Tuesday from the Bureau of Labor Statistics showed that the Producer Price Index (PPI), which tracks changes in prices seen by companies, rose 3.3% from a year earlier. While that was higher than the 3% reported in November, it was still below the 3.5% increase economists had expected. On a month-over-month basis, prices rose 0.2%, lower than the 0.4% increase forecast.
Excluding food and energy, “core” PPI prices rose 3.5% year-over-year, slightly higher than the 3.4% increase in November. However, that figure was still below economists’ expectations of a 3.8% increase. Meanwhile, monthly core prices remained unchanged, below the 0.3% increase forecast and the 0.2% increase reported last month.
Thursday’s PPI report comes a day before the highly anticipated release of December’s Consumer Price Index (CPI). Economists expect the report to show some improvement, with core inflation expected to hold steady at 3.3% annually for the fifth straight month.
The recent strong labor report has led many economists to believe that signs of easing inflation in the coming months are crucial for the Federal Reserve to cut interest rates further this year.
So far, the market has priced in just a 3% probability that the Federal Reserve will cut rates at its January meeting, according to the CME FedWatch Tool. The market does not see a probability of more than 50% for a rate cut until at least the June meeting.
