Producer Price Index: Wholesale Inflation Falls for the Third Month in a Row

The cost of goods fell 0.4% in December because of another decline in energy prices.

MarketWatch

U.S. wholesale prices fell in December for the third month in a row, pointing to decelerating inflation in the months ahead.

Economists polled by the Wall Street Journal had forecast a 0.1% increase in the producer price index.

The decline in wholesale inflation last month offers a bit of relief after a hotter-than-expected increase in the consumer price index. The CPI posted the biggest gain in December in three months.

After the sticky consumer-inflation report, many economists pooh-poohed the idea that the Federal Reserve could cut interest rates as soon as March. Cleveland Fed President Lorettta Mester also said "March is probably too early in my estimation."

The wholesale report might keep those hopes alive, especially since a weak PPI often portends a mild reading in the PCE index. That's the Fed's preferred measure of inflation.

A separate measure of "core" wholesale prices that strips out volatile food, energy and trade margins rose a mild 0.2%% last month, the government said. That matched the Wall Street forecast.

Wholesale costs often foretell future inflation trends.

Big picture: The trend in wholesale prices points to lower inflation in 2024. The Fed is aiming to bring consumer inflation down to 2%, but it might take a year or two to get there.

The faster the progress, the quicker the Fed will be inclined to cut interest rates and give the economy a boost.

Key details: The cost of goods fell 0.4% in December because of another decline in energy prices. Food prices also fell.

The cost of wholesale services, where inflation is running the hottest, was flat in December.

The increase in wholesale prices in the past 12 months edged up to 1.0% from 0.8% in the prior month.

The increase so-called core prices over the past year ticked up to 2.5% from 2.4%.

Inflation in the pipeline of the economy also continued to reverse.

The wholesale cost of partly finished goods dropped 0.6% while prices of raw materials sank 4.4%. Both are negative compared to one year earlier.

The PPI report captures what companies pay for supplies such as fuel, packaging and so forth. These costs are often passed on to customers at the retail level and give an idea of whether inflation is rising or falling.