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Dow Jones NewsJan 14, 2:20 PM UTC
MW Is the recent uptick in inflation cresting? Wholesale prices posts smaller-than expected increase.
By Jeffry Bartash
Producer-price index rises just half as much as forecast
The numbers: Wholesale prices rose modestly in December in a reprieve from a string of elevated inflation in the final months of 2024 that have likely delayed further cuts in U.S. interest rates.
Investors will wait for further confirmation in the consumer-price index due Wednesday to see if the trend is replicated.
The producer-price index, where the seeds of inflation are planted, rose a mild 0.2% last month, the government said Tuesday. Wall Street had predicted an increase double that size.,
The rate of increase in wholesale inflation in the past 12 months rose to 3.3% from 3.0%, however. That's the highest rate in almost two years.
The core rate of wholesale inflation, which omits volatile food, energy and trade margins, increased an even smaller 0.1% last month.
The 12-month core rate moved down to 3.3%% from 3.5%, but it's still too high for the Federal Reserve. The core rate is seen by the Fed as a better predictor of future trends.
Key details: The best part of the wholesale price report was no increase in the cost of services, one of the biggest drivers of inflation in the past few years.
Still, the cost of services has risen a sharp 4% in the past year - double the prepandemic average.
Goods prices jumped in December, mostly because of an increase in energy prices. The cost of energy has since leveled off.
Food prices fell slightly in December after a big increase in the prior month tied to a spike in the cost of eggs. Another outbreak of the bird flu forced chicken producers to slaughter millions of birds.
Wholesale egg prices rose just 0.5% in December following a 56% surge in November.
The cost of partly finished goods and raw materials - food and energy aside - were also muted. That's usually an indication of low inflation pressures in the guts of the economy.
Big picture: A pronounced slowdown in inflation over the past two years appears to have come to a halt, at least temporarily, despite a positive PPI report.
The result: Fed rate cuts are on hold, a bull market in stocks has suffered a blow and the outlook for the economy is more uncertain.
Looking ahead: "This tempers the higher end of expectations for tomorrow's CPI report and clears the way for softer inflation readings in early 2025," said Ben Ayers, senior economist at Nationwide.
Market reaction: The Dow Jones Industrial Average and S&P 500 were set to open slightly higher in Tuesday trading. The better-than-expected PPI report added some momentum.
-Jeffry Bartash
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01-14-25 0920ET
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