U.S. Producer Prices Unexpectedly Edge Slightly Lower In December

(RTTNews) - Producer prices in the U.S. unexpectedly edged slightly lower in the month of December, according to a report released by the Labor Department on Friday.

The Labor Department said its producer price index for final demand slipped by 0.1 percent in December, matching a revised dip in November.

Economists had expected producer prices to inch up by 0.1 percent compared to the unchanged reading originally reported for the previous month.

The modest decrease in producer prices partly reflected anther steep drop in energy prices, which tumbled by 1.2 percent in December after plunging by 2.4 percent in November.

The report said food prices also slid by 0.9 percent in December after climbing by 0.7 percent in the previous month.

The decrease in food and energy prices contributed to a 0.4 percent drop in prices for final demand goods, although excluding food and energy prices, prices for final demand goods were unchanged.

Meanwhile, the Labor Department said prices for services came in unchanged for the third consecutive month, as declines in prices for trade and transportation and warehousing services were offset but an increase in prices for other services.

Prices for trade services fell by 0.8 percent and prices for transportation and warehousing services decreased by 0.4 percent, but prices for other services rose by 0.4 percent.

The report said core producer prices, which exclude prices for foods, energy, and trade services, rose by 0.2 percent in December after edging up 0.1 percent in both November and October.

"Although a 0.2% monthly increase is consistent with the Fed's long-run 2% year-on-year inflation target, December data do not reflect current supply chain issues in the Red Sea, which could put meaningful upward pressure on consumer and producer goods prices starting with January data," said said FHN Financial Macro Strategist Will Compernolle.

The Labor Department also said the annual rate of producer price growth accelerated to 1.0 percent in December from a downwardly revised 0.8 percent in November.

The annual rate of producer price growth was expected to speed up to 1.3 percent from the 0.9 percent originally reported for the previous month.

The report also said the annual rate of core producer price growth crept up to 2.5 percent in December from 2.4 percent in November.

"PPI reports always feel secondary when they're released after the more-important CPI data, but considering the December PPI does not incorporate new supply chain issues from conflicts in the Red Sea, this morning's report feels particularly backward-looking," said Compernolle.

"As a result, the encouraging aspects of December data on producer prices should be largely dismissed for now," he added. "We'll have to wait until January to see how recent supply chain problems pass through to US producer prices."

A separate report released by the Labor Department on Thursday showed consumer prices in the U.S. rose by slightly more than expected in the month of December.

The Labor Department said its consumer price index climbed by 0.3 percent in December after inching up by 0.1 percent in November. Economists had expected consumer prices to rise by 0.2 percent.

Shelter prices increased by 0.5 percent during the month, contributing over half of the advance by the consumer price index.

The report said energy prices also rose by 0.4 percent, as increases in prices for electricity and gasoline more than offset a decrease in prices for natural gas, while prices for food edged up by 0.2 percent.

Excluding food and energy prices, core consumer prices still climbed by 0.3 percent in December, matching the increase seen in November as well as economist estimates.

The core price growth reflected the increase in shelter prices as well as higher prices for motor vehicle insurance and medical care.

Meanwhile, prices for household furnishings and operations and personal care were among those that decreased over the month.

The report also showed the annual rate of consumer price growth accelerated to 3.4 percent in December from 3.1 percent in November. The annual rate of growth was expected to tick up to 3.2 percent.

At the same time, the annual rate of growth by core consumer prices slowed to 3.9 percent in December from 4.0 percent in November. Economists had expected the pace of core price growth to decelerate to 3.8 percent.