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U.S. producer prices unexpectedly fell in December amid declining costs for goods such as diesel fuel and food, suggesting inflation would continue to subside and allow the Federal Reserve to start cutting interest rates this year.
The report from the Labor Department on Friday, which also showed prices for services were unchanged for the third straight month, implied that a pick-up in consumer prices last month was likely a blip. It led economists to anticipate that the key price measures tracked by the U.S. central bank for its 2% inflation target rose moderately in December from the prior month.
“The inflation pipeline is clearing and consumer prices will gradually get to the Fed’s 2% target,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
The producer price index for final demand dipped 0.1% last month, the Labor Department’s Bureau of Labor Statistics said. Data for November was revised to show the PPI falling 0.1% instead of being unchanged as previously reported. The PPI has now declined for three consecutive months.
Economists polled by Reuters had forecast the PPI rebounding 0.1%. Goods prices dropped 0.4%, with a 12.4% decline in the cost of diesel fuel accounting for half of the decrease.
Goods prices fell 0.3% in November. They have dropped for three straight months. Excluding food and energy, goods prices were unchanged after edging up 0.1% in November.
The weakness also suggested that goods deflation remained in force despite an uptick in consumer goods prices in December following two straight monthly decreases.
Food prices slipped 0.9% last month, with the cost of eggs tumbling 20.
