By REUTERS
US producer prices fell in December as energy prices dropped sharply, a trend that could temper expectations that inflation will rise this year toward the Federal Reserve’s (Fed) target.
The Labour Department said on Friday its producer price index (PPI) slipped 0.2% after increasing 0.3% in November.
In the 12 months through December, the PPI declined 1% after falling 1.1% in November. December marked the 11th straight 12-month decrease in the index.
Producer prices fell 1% in 2015, the weakest since the series started in 2010, after rising 0.9% in 2014. Economists had forecast the PPI falling 0.2% last month and declining 1% from a year ago.
Coming on the heels of a report on Thursday showing a steep drop in import prices in December, weak producer prices suggest that an anticipated rise in inflation will probably be insufficient to breach the Fed’s 2% target.
Inflation, which has been tamed by a strong US dollar, tepid wage growth and cheaper oil, is expected to rise this year as 2015’s weak figures fall out of the calculation. However, persistently low readings could limit the boost from the favourable so-called base effects.
The inflation outlook will likely determine the timing of further interest rate increases after the Fed last month raised its key overnight lending rate by 25 basis points to between 0.25% and 0.5%, the first rate hike in nearly a decade.
Last month, the cost of services edged up 0.1% after November’s 0.5% increase. Energy prices fell 3.4% after dropping 0.6% in November. Wholesale food prices fell 1.3% after gaining 0.3% the prior month.
Goods prices fell 0.7%, declining for a sixth straight month.
A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2% last month after edging up 0.1% in November.
The so-called core PPI was up 0.3% in the 12 months through December.
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