The recent report from the Bureau of Labor Statistics reveals an unexpected slowdown in producer price growth on a sequential basis for last month. This finding indicates that while wholesale costs for services remained stable, the increase in prices for goods has moderated significantly. In December, the US producer price index saw a modest rise of 0.2% month over month, which is notably less than the anticipated 0.4% increase projected in a Bloomberg poll.
This also reflects a reduction from November's figures, where the index had increased at a rate of 0.4%. The segment for final demand goods recorded a 0.6% increase, marking its growth for three consecutive months. However, this number represents a deceleration compared to November’s 0.7% gain. Meanwhile, prices for services have shown consistency, with growth observed at 0.3% for the preceding two months. In analyzing the specifics of goods, energy costs remarkably surged by 3.5% in December after previously enduring a flat month in November.
Conversely, food costs decreased by 0.1%, following a significant 2.9% increase. When considering the headline index that excludes food, energy, and trade services, there was a slight uptick of 0.1%, landing below analysts’ expectations of a 0.3% increase. A closer look at gasoline prices reveals a staggering 9.7% increase month over month, while notable rises were also observed in the prices of motor vehicles, meats, and fresh fruits.
Contrarily, costs for fresh and dry vegetables took a substantial dip, nearly plummeting by 15%. On the services side, the passenger transportation sector led the charge in price increases, whereas accommodations for travelers saw a downward trend. In terms of year-over-year changes, producer prices exhibited a 3.3% rise last month, which was again below the 3.5% increase that analysts had projected.
Specifically, the final demand energy index faced a 2% decline, while food prices ascended by 4.7%. Amid these fluctuations, the Federal Reserve has adopted a more cautious stance regarding potential interest rate cuts, having already adjusted the policy rate down by 100 basis points since September.
Market observers widely speculate that the central bank's monetary policy committee will opt to maintain current interest rates in their upcoming meeting, as highlighted by insights gathered from the CME FedWatch tool..