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US producer prices fall in December on declining energy costs

[WASHINGTON] US producer prices fell in December as energy prices dropped sharply, a trend that could temper expectations that inflation will rise this year toward the Federal Reserve's target.

The Labour Department said on Friday its producer price index slipped 0.2 per cent after increasing 0.3 per cent in November.

In the 12 months through December, the PPI declined 1.0 per cent after falling 1.1 per cent in November. December marked the 11th straight 12-month decrease in the index.

Producer prices fell 1.0 per cent in 2015, the weakest since the series started in 2010, after rising 0.9 per cent in 2014. Economists had forecast the PPI falling 0.2 per cent last month and declining 1.0 per cent from a year ago.

Coming on the heels of a report on Thursday showing a steep drop in import prices in December, weak producer prices suggest that an anticipated rise in inflation will probably be insufficient to breach the Fed's 2 per cent target.

Inflation, which has been tamed by a strong dollar, tepid wage growth and cheaper oil, is expected to rise this year as 2015's weak figures fall out of the calculation. However, persistently low readings could limit the boost from the favourable so-called base effects.

The inflation outlook will likely determine the timing of further interest rate increases after the Fed last month raised its key overnight lending rate by 25 basis points to between 0.25 and 0.50 per cent, the first rate hike in nearly a decade.

Last month, the cost of services edged up 0.1 per cent after November's 0.5 per cent increase. Energy prices fell 3.4 per cent after dropping 0.6 per cent in November. Wholesale food prices fell 1.3 per cent after gaining 0.3 per cent the prior month.

Goods prices fell 0.7 per cent, declining for a sixth straight month.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 per cent last month after edging up 0.1 per cent in November.

The so-called core PPI was up 0.3 per cent in the 12 months through December.