Producer Price Index Slows More Than Expected To 1% In December, Signals Softening Price Pressures

Price pressures on goods and services bought by U.S. producers softened again in December, more than what economists expected.

The Producer Price Index (PPI) was 1% higher in December 2023 compared to the previous year, although missing the 1.3% predicted by the economist consensus. This development follows unexpectedly high Consumer Price Index (CPI) inflation reported Thursday that challenged market beliefs over a Fed rate cut in the first quarter of the year.

Key Highlights From December PPI Report:

• The headline PPI index rose from a downwardly revised 0.8% year-on-year in November to 1% in December, missing economist forecasts of 1.3%.
• On a monthly basis, headline producer inflation decreased by 0.1%, softening from the flat reading in November and missing the expected 0.1% increase.
• The core PPI index, which excludes energy and food inputs, fell to 1.8% year-on-year, down from 2% in November, below economist forecasts of 1.9%.
• On a monthly basis, the core producer index was flat as in November, and well below the expected 0.2% increase.

Market Reactions

During premarket trading on Friday, futures for major U.S. stock averages all moved lower, with S&P 500 contracts down by 0.2%.

Losses in the equities of some major U.S. banks, including Bank of America Corp. and Wells Fargo Company Inc. as well as in airline stocks such as Delta Air Lines Inc. and American Airlines Group Inc., weighed on the broader market. This was due to disappointing fourth-quarter earnings and outlooks.

JP Morgan Chase & Co. also missed its fourth-quarter numbers but traded higher in premarket trading after the bank announced it expects about $90 billion in net interest income for 2024.

Minutes after the PPI release, stocks trimmed losses, as U.S. Treasury yields moved lower. The 10-year yield fell 4 basis points to below 4%.

Commodities saw a broader rise, primarily driven by rising crude oil prices, which were up by over 2%, amid growing tensions in the Red Sea. Overnight, U.S. and U.K. forces conducted airstrikes against Houthi rebel targets in Yemen in response to repeated attacks by the Iranian-backed group on ships in the Red Sea.

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