Pipeline inflation pressures declined dramatically in January due to lower oil prices, according to the latest data from the U.S. Department of Labor.
Wednesday, the Department of Labor Statistics reported that last month its Producer Price Index fell 0.8% on a seasonally adjusted basis, compared to a fall of 0.3% in December. According to consensus forecasts, economists were expecting the index to fall 0.4%.
According to the report, gasoline prices remain the biggest factor for headline producer price inflation; the gasoline index saw a decline of 24% last month.
The report said producer prices, excluding food, energy and trade, fell 0.3%, following a 0.1% increase in December.
Core prices, which exclude just food and energy, showed a 0.1% fall in January, compared to 03% in December; economists were expecting core prices to rise 0.1%. Economists were expecting core prices to rise 0.1%..
Paul Ashworth, chief U.S. economist at Capital Economics, said the drop in producer price inflation does not mean there is a deflationary risk in the U.S. economy and it won’t keep the Federal Reserve from hiking rates in the second half of the year. He added that the drop in core inflation is the result of a strong U.S. dollar.
“As with the drop in energy prices, however, the impact of the stronger dollar on price inflation will be temporary,” he said. “Given that the Fed is targeting the inflation rate in one or two years’ time rather than the current rate, this is not a reason to delay the first interest rate hike, which we expect in June.”