By Lucia Mutikani
WASHINGTON (Reuters) -U.S. producer prices rose less than expected in December as higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward trend after progress had stalled in recent months.
The moderation in producer inflation reported by the Labor Department on Tuesday did not change the view that the Federal Reserve would not cut interest rates again before the second half of this year amid labor market resilience and the threat of potentially inflation-boosting tariffs on imported goods by President-elect Donald Trump’s incoming administration.
“Better than expected is not necessarily what the Fed wants to see before easing monetary conditions into a fast-growing economy, with tariffs and tax cuts on the agenda of the incoming administration,” said Carl Weinberg, chief U.S. economist at High Frequency Economics.
The producer price index for final demand rose 0.2% last month after an unrevised 0.4% advance in November, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI would climb 0.3%.
In the 12 months through December, the PPI accelerated 3.3%, the most since February 2023, after increasing 3.0% in November.
The surge in the year-on-year rate reflected lower prices last year, especially for energy products, that dropped out of the calculation. Inflation increased 3.3% in 2024 after rising 1.1% in 2023.
The narrower measure of PPI, which strips out food, energy and trade, ticked up 0.1% for a second straight month. Core PPI increased 3.3% on a year-on-year basis after advancing 3.5% in November. Some economists cautioned against reading too much into the benign rise in the monthly PPI, arguing that producer prices tended to be softer in December.
They did not expect the tame reading to extend to the consumer price data for December due to be released on Wednesday. A Reuters survey forecast consumer prices would rise 0.3%, matching November’s gain.
“Today’s PPI numbers should offer absolutely no comfort about tomorrow’s CPI release,” said Stephen Stanley, chief U.S. economist at Santander US Capital Markets.
Lack of progress lowering inflation back to the U.S. central bank’s 2% target, a resilient economy and uncertainty over the impact of the Trump administration’s policies, including tax cuts and mass deportations of undocumented immigrants, prompted the Fed to project a shallower rate-cut path this year.
The government last week reported a sharp rise in nonfarm payrolls in December and a decline in the unemployment rate, which led economists to expect that the U.S. central bank would keep rates unchanged through June.
