WASHINGTON — The recent report from the Labor Department indicates an increase in wholesale inflation for the month, primarily driven by rising energy costs. The producer price index (PPI), which measures inflation prior to reaching consumers, rose by 0.2% in December compared to November, a decrease from the previous month’s increase of 0.4%. Year-over-year, producer prices showed a rise of 3.3%, marking the largest increase since February 2023, up from a 3% rise in November.
In particular, a notable 3.5% increase in energy prices from November to December, significantly influenced by a 9.7% jump in gasoline prices, contributed to the overall rise in the index. On the other hand, food prices experienced a minor decline of 0.1% in December.
Despite these increases, the rates were slightly lower than economists had anticipated, prompting a positive reaction in U.S. markets immediately following the release of the inflation data. When excluding food and energy, core wholesale inflation remained flat compared to November but was up by 3.5% from the same time last year.
The producer price index was released just a day prior to another important report from the Labor Department concerning consumer prices. Forecasts for the consumer price index (CPI) suggested an increase of 0.3% from November and 2.8% from December 2022, according to predictions gathered from analysts.
Wholesale prices serve as a crucial indicator of potential movements in consumer inflation, and economists closely monitor these figures. This is especially true for specific components such as healthcare and financial services, which are considered in the Federal Reserve’s preferred inflation measure known as the personal consumption expenditures (PCE) index.
Following an economic resurgence after the COVID-19 pandemic, inflation began to rise sharply in early 2021, leading to significant disruptions in supply chains, including factories and freight services. To combat this, the Federal Reserve implemented 11 interest rate hikes throughout 2022 and 2023.
While inflation has receded from the peak levels observed in mid-2022, recent progress has slowed, maintaining year-over-year consumer price increases above the Federal Reserve’s target of 2%. In light of these developments, Fed officials advised caution in December regarding future rate cuts, now anticipating only two reductions in 2025, which is a shift from the earlier forecast of four. The Fed is expected to keep rates stable during its upcoming meeting on January 28-29.
Concerns have emerged among economists regarding the potential impact of President-elect Donald Trump’s plans to implement tariffs on imports and reduce taxes, which could further fuel inflation. Carl Weinberg, the chief economist at High Frequency Economics, expressed that the current inflation figures do not provide the Federal Reserve with a justification to lower interest rates in the near term. “The Fed will not see any argument for pushing interest rates lower, sooner, in today’s figures,” he stated, noting that an unexpected strengthening in the economy combined with potential tariffs and tax cuts complicates the situation for monetary policy.
This report was amended to clarify that producer prices rose by 3%, not 3.4%, in November year-over-year.
