U.S. wholesale inflation increased in December 2023, primarily due to a surge in energy prices. The producer price index (PPI), which measures inflation before it reaches consumers, rose by 0.2% from November. Year-over-year, producer prices surged by 3.3%, the largest jump since February 2023. The increase was partially offset by a dip in food prices. U.S. markets reacted positively to the news, with the S&P 500, Dow Jones Industrial Average, and Nasdaq composite all showing gains. The report comes ahead of the release of the consumer price index (CPI) on Wednesday, which is expected to show a 0.3% increase from November.
U.S. wholesale inflation rose last month primarily due to elevated energy prices . The Labor Department reported on Tuesday that its producer price index (PPI), which measures inflation before it reaches consumers, increased by 0.2% in December compared to November, down from a 0.4% gain the previous month. Year-over-year, producer prices surged by 3.3%, the largest jump since February 2023, exceeding the 3% increase observed in November.A 3.
5% surge in energy prices from November to December, driven by a 9.7% spike in gasoline prices, propelled the overall index upward. Food prices, however, dipped by 0.1% in December. Despite these increases, the overall figures were slightly below economists' projections. U.S. markets responded positively to the new inflation data, with the S&P 500 gaining 0.4% in early trading Tuesday. The Dow Jones Industrial Average climbed 163 points, and the Nasdaq composite rose 0.6%.Excluding food and energy prices, core wholesale inflation remained stable in November but exhibited a 3.5% year-over-year increase. This PPI report precedes the Labor Department's scheduled release of the consumer price index (CPI) on Wednesday. The CPI is anticipated to increase by 0.3% from November and 2.8% from December 2023, according to a survey of forecasters by FactSet. Wholesale prices offer an early glimpse into potential trends in consumer inflation. Economists closely monitor them because certain components, particularly healthcare and financial services, influence the Federal Reserve's preferred inflation gauge — the personal consumption expenditures (PCE) index.Inflation intensified in early 2021 as the economy recovered unexpectedly swiftly from COVID-19 lockdowns, overwhelming factories, ports, and freight yards, leading to shortages, delays, and price hikes. In response, the Fed raised its benchmark interest rate — the federal funds rate — 11 times in 2022 and 2023. Inflation moderated from its four-decade high reached in mid-2022, granting the Fed enough confidence to reverse course and lower rates three times in 2024. However, progress on inflation has stalled in recent months, and year-over-year increases in consumer prices persistently exceed the central bank's 2% target.Fed officials signaled in December their intention to adopt a more cautious approach to rate cuts this year. They now foresee just two rate reductions in 2025, down from the four projected in September. A widely anticipated decision is to maintain rates unchanged at their next meeting on January 28-29. Many economists express concern that President-elect Donald Trump's pledges to impose tariffs on foreign goods and reduce taxes could exacerbate inflation. 'The Fed will not find any justification for lowering interest rates sooner, based on today's figures,' stated Carl Weinberg, chief economist at High Frequency Economics. 'Better-than-expected is not necessarily what the Fed desires to see before easing monetary conditions into a rapidly expanding economy, with tariffs and tax cuts on the agenda of the incoming administration.
Wholesale Inflation Producer Price Index Energy Prices Consumer Price Index Federal Reserve
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