US producer prices barely rise in December

[WASHINGTON] US producer prices edged up in December as a rise in the cost of goods was offset by weakness in services, the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rate unchanged this year.

The Labour Department said on Wednesday its producer price index for final demand ticked up 0.1 per cent last month after being unchanged in November. In the 12 months through December, the PPI increased 1.3 per cent after gaining 1.1 per cent in November.

Economists polled by Reuters had forecast the PPI climbing 0.2 per cent in December and advancing 1.3 per cent on a year-on-year basis.

Excluding the volatile food, energy and trade services components, producer prices also nudged up 0.1 per cent in December after being unchanged in November. The so-called core PPI rose 1.5 per cent in the 12 months through December after increasing 1.3 per cent in November.

The data followed a report on Tuesday showing a small increase in consumer prices in December. The Fed, which has a 2 per cent annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy.

The core PCE price index rose 1.6 per cent on a year-on-year basis in November and fell short of its target in the first 11 months of 2019. December PCE price data will be published later this month.

The US central bank last month left interest rates steady and signaled monetary policy could remain on hold at least through this year after it reduced borrowing costs three times in 2019.

Inflation could remain tame, with the government reporting last Friday that the annual increase in wage growth retreated to below 3 per cent in December even as the unemployment rate held at a near 50-year low of 3.5 per cent and a broader measure of labor market slack dropped to a record 6.7 per cent.

In December, wholesale energy prices jumped 1.5 per cent after increasing 0.6 per cent in November. They were boosted by a 3.7 per cent acceleration in gasoline prices, which followed a 2.3 per cent rise in November.

Goods prices rose 0.3 per cent last month, matching November's rise. Gasoline accounted for more than 60 per cent of the increase in goods prices last month. Wholesale food prices fell 0.2 per cent after surging 1.1 per cent in November. Core goods prices ticked up 0.1 per cent last month. They increased 0.2 per cent in November.

The cost of services was unchanged in December after dropping 0.3 per cent in November, which was the biggest decline since February 2017.

The cost of healthcare services fell 0.1% in December after slipping 0.2 per cent in the prior month. The weakness wholesale healthcare prices is in stark contrast with strong readings in December's consumer inflation report. Portfolio management fees jumped 1.9 per cent after rebounding 1.2 per cent in November. Those healthcare and portfolio management costs feed into the core PCE price index. 

REUTERS