US core producer prices decline for first time in a year

[WASHINGTON] A key measure of US producer prices unexpectedly fell in December and the overall gauge declined more than forecast amid lower oil prices, signaling potential inflation pressures in the economy are contained.

Excluding food and energy, producer prices decreased 0.1 per cent from the prior month, the first decline in a year, according to a Labour Department report Tuesday. The overall producer-price index fell 0.2 per cent from November after a 0.1 per cent rise. The Bloomberg survey median called for an increase in the core PPI and a drop in the main index.

On an annual basis, core producer-price gains held steady at 2.7 per cent - missing forecasts for 3 per cent - while the broad gauge rose 2.5 per cent, also unchanged from the prior reading. Food and energy prices are typically volatile.

The PPI figures, which measure wholesale and other selling costs at businesses, suggest prices are firming up only gradually. They're also in line with consumer-price data that showed a drag from energy costs while core inflation held steady, giving the Federal Reserve little urgency to raise interest rates soon.

Within final demand PPI for goods, energy costs fell 5.4 per cent from November, led by a 13.1 per cent drop in gasoline prices, while food costs climbed 2.6 per cent.

Producer costs excluding food, energy, and trade services - a measure preferred by economists because it strips out the most volatile components - softened to an unchanged month-on-month reading and the annual gain held for a third straight month at 2.8 per cent.

The PPI for services slipped 0.1 per cent, the first decline in four months, weighed down by transportation and warehousing and narrower margins for retailers and wholesalers. That dragged down the core index.

About 80 per cent of the monthly decrease in the broader PPI gauge came from a 0.4 per cent decline in goods prices.

Bloomberg's survey of economists had called for a 0.2 per cent rise in core PPI and a 0.1 per cent drop for the broader measure.

While the CPI is considered a more important indicator of inflation, producer prices help provide insights into the direction of input costs, and analysts monitor PPI to assess how the gains will filter through to consumers.

BLOOMBERG