US producer prices down the most in more than 2 years

Overall Producer Price Index fell by 0.2% last month after edging up 0.1% in November.

Cows grazing in a field Source: Bloomberg

Producer prices in the United States (US) fell the most in more than two years in December as costs of energy products and trade services fell. The weakness in prices reflect a slower inflation landscape which may allow the US Federal Reserve to take a slower stance on raising interest rates for this year.

Overall Producer Price Index (PPI) fell by 0.2% last month after edging up 0.1% in November, the first decline since February 2017 and the largest fall since August 2016, the Labour Department said in a report on Tuesday night. Year-on-year, overall PPI rose by 2.5%, matching November’s increase.

Experts in a Bloomberg survey had expected a 0.1% drop for overall PPI and a 2.5% increase from a year ago.

Excluding food and energy, producer prices decreased 0.1% from the previous month, the first decline in a year. Year-on-year core producer prices rose by 2.5%.

Fed Chairman Jerome Powell said last week that low inflation afforded policymakers 'the ability to be patient and watch patiently and carefully' while they monitored economic data and financial markets for risks to growth. The US central bank has forecast two rate increases for 2019.

The PPI measures wholesale prices and other selling costs from business to business, and the latest month’s prices indicate that the prices are only gradually firming up.

The PPI for wholesale energy prices fell by 5.4% from November, due to a 13.1% fall in gasoline prices. Wholesale food prices were up by 2.6%, rising from the 1.3% increase in November.

PPI for services dipped 0.1%, making it the first decline in four months, due to narrower margins received by retailers and wholesalers for trade services.

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