A measure of wholesale prices increased less than expected in December, indicating that inflation pressures may have eased towards the end of the year, although it may not be sufficient to prompt another interest rate cut by the Federal Reserve in the near future.
The producer price index rose by only 0.2% in December, lower than the 0.4% increase in November and below the Dow Jones consensus estimate of 0.4%, as reported by the Bureau of Labor Statistics on Tuesday.
The core PPI, which excludes food and energy, remained unchanged compared to the expected 0.3% rise. Excluding food, energy, and trade services, the measure increased by just 0.1%.
Annually, the headline PPI increased by 3.3% for the full year, significantly higher than the 1.1% increase in 2023.
Goods prices rose by 0.6%, driven by a 9.7% surge in gasoline prices. However, this increase was offset by a 14.7% decline in prices for fresh and dry vegetables.
On the services side, prices remained flat, despite a 7.2% increase in passenger transportation costs, which was counteracted by a decrease in prices for traveler accommodation.
Following the report, stock market futures rose, while Treasury yields fell after experiencing significant increases at the beginning of 2025.
This release is the first of two crucial inflation readings this week that will likely influence the Federal Reserve’s interest rate decision later in January.
On Wednesday, the BLS will publish its more closely monitored consumer price index, which is expected to show monthly gains of 0.3% in both the headline and core readings, with annual inflation rates of 2.9% and 3.3%, respectively.
Although the Federal Reserve primarily focuses on the Commerce Department’s personal consumption expenditures price index as its primary inflation indicator, the PPI and CPI readings are also taken into consideration.
Market expectations strongly suggest that the Fed will maintain its current stance at the Jan. 28-29 meeting. However, policymakers, especially Chair Jerome Powell, may provide insights into future rate decisions.
As of Tuesday, Fed funds futures pricing indicated only one rate cut for the remainder of the year. Bank of America economists suggested on Monday that the Fed may not make any further cuts this year. During their December meeting, Fed officials had projected two rate cuts this year, assuming quarter-percentage-point adjustments.
