US Wholesale Price Fall In Dec

Wholesale prices in the U.S. declined in December from the prior month, showing inflation is still well-contained as Federal Reserve officials weigh further increases in the benchmark interest rate.

The 0.2 percent decrease in the producer-price index followed a 0.3 percent gain in November, a Labor Department report showed today in Washington. Over the past 12 months, wholesale prices fell 1 percent. The PPI excluding volatile food and fuel prices climbed 0.1 percent from the prior month.

Businesses have gotten used to subdued wholesale costs as the plunge in fuel prices and appreciation of the dollar limit cost pressures. Policy makers, who maintain that these effects are transitory amid labor-market progress and broader economic growth, raised the benchmark interest rate in December for the first time since 2006.

“The pressures right now are towards further very low inflation,” Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “The assumption is that oil prices will stabilize, the dollar will stabilize and inflation will start to pick up later this year.”

The median estimate in a Bloomberg survey of 68 economists called for a 0.2 percent decrease. Projections ranged from a drop of 0.9 percent to a 0.1 percent advance.

Goods and services price growth showed more divergence. Prices paid for goods fell 0.7 percent in December after a 0.1 percent drop the prior month. Service prices increased 0.1 percent after a 0.5 percent jump in November.

Food, Energy

Food prices declined 1.3 percent, the most since February, according to the report. Energy costs slumped 3.4 percent, led by a 23.4 percent plunge in diesel fuel that was the biggest since 1990.

Wholesale prices excluding food and energy were forecast to rise 0.1 percent after a 0.3 percent increase in November. Those costs were up 0.3 percent from December 2014.

Excluding food and energy and also eliminating trade services, producer costs advanced 0.2 percent after rising 0.1 percent in November. Some economists prefer this reading because it strips out the most volatile components of PPI.

The producer price gauge is one of three monthly inflation reports from the Labor Department. The consumer price index, due for release Jan. 20, showed little change in December, according to the Bloomberg survey median. A report Thursday showed the cost of imported goods declined 1.2 percent last month, the biggest decrease since August.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell