U.S. producer prices in December recorded their biggest fall in more than three years on tumbling energy costs while underlying inflation pressures were muted, a cautionary note for the Federal Reserve as it ponders its next step on monetary policy.
The Labor Department said on Thursday its producer price index for final demand declined 0.3 percent, the biggest drop since October 2011, after falling 0.2 percent in November.
In the 12 months through December, producer prices increased 1.1 percent, the smallest gain since November 2013, after rising 1.4 percent in November. Economists polled by Reuters had forecast the PPI dropping 0.4 percent in December and increasing 1.0 percent from a year ago.
Fed officials largely view the energy-driven weakness in inflation as transitory. But with average hourly earnings, another key inflation measure, falling in December, that could give pause to some policymakers.
The U.S. central back has kept its short-term interest rate near zero since December 2008. Most economists expect the first interest rate hike in June, but U.S. futures traders have cut their bets to the second half of this year in the wake of Wednesday’s weak retail sales report.
Inflation is running below the Fed’s 2 percent target. Consumer inflation data on Friday is expected to show price pressures remaining muted in December.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.