Summary: US producer price index (PPI) down 0.1% in December, contrasts with expected increase; annual rate accelerates slightly to 0.9%; “core” PPI flat; US Treasury yields generally lower; 2024 rate-cut expectations harden; goods prices fall, services prices flat.
Around the end of 2018, the annual inflation rate of the US producer price index (PPI) began a downtrend which continued through 2019. Months in which producer prices increased suggested the trend may have been coming to an end, only for it to continue, culminating in a plunge in April 2020. Figures returned to “normal” towards the end of that year but then moved well above the long-term average in 2021 and 2022 before falling back over 2023.
The latest figures published by the Bureau of Labor Statistics indicate producer prices slipped by 0.1% after seasonal adjustments in December. The result contrasted with the 0.1% increase which had been generally expected but it was in line with November 0.1% decline after revisions. On a 12-month basis, the rate of producer price inflation after seasonal adjustments and revisions accelerated from November’s revised figure of 0.8% to 0.9%.
Producer prices excluding foods and energy, or “core” PPI, were flat after seasonal adjustments. The result was less than the expected 0.2% increase but in line with November’s unchanged reading. The annual growth rate slowed from 1.9% to 1.7%.
US Treasury bond yields generally fell on the day. By the close of business, the 2-year Treasury yield had shed 11bps to 4.15%, the 10-year yield had lost 2bps to 3.96% while the 30-year yield finished 1bp higher at 4.20%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months hardened. At the close of business, contracts implied the effective federal funds rate would average 5.315% in February, 1bp less than the current spot rate, 5.245% in March and 5.115% in April. January 2025 contracts implied 3.635%, 169bps less than the current rate.
The BLS stated the index for final demand goods fell by 0.4% while the final demand services index remained flat.
The producer price index is a measure of prices received by producers for domestically produced goods, services and construction. It is put together in a fashion similar to the consumer price index (CPI) except it measures prices received from the producer’s perspective rather than from the perspective of a retailer or a consumer. It is another one of the various measures of inflation tracked by the US Fed, along with core personal consumption expenditure (PCE) price data.