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US producer prices post first decline in nearly 1-1/2 years

[WASHINGTON] US producer prices fell for the first time in nearly 1-1/2 years in December amid declining costs for services.

The Labor Department said on Thursday its producer price index for final demand slipped 0.1 per cent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 per cent.

In the 12 months through December, the PPI rose 2.6 per cent after accelerating 3.1 per cent in November. Economists polled by Reuters had forecast the PPI rising 0.2 per cent last month and increasing 3.0 per cent from a year ago.

The PPI increased 2.6 per cent in 2017 after advancing 1.7 per cent in 2016. A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 per cent last month.

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The so-called core PPI increased 0.4 per cent in November. It rose 2.3 percent in the 12 months through December. The core PPI increased 2.4 per cent in the 12 months through November. It gained 2.3 per cent in 2017 after rising 1.8 per cent in 2016.

Coming on the heels of a report on Wednesday showing a sharp moderation in import prices in December, the weak PPI report might temper expectations that inflation will accelerate this year even though its correlation with consumer prices has weakened.

Economists are hoping that a tightening labor market and recent weakness in the dollar will lift inflation towards the Federal Reserve's 2 per cent target this year. The US central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012. The greenback lost 7 per cent of its value against the currencies of the United States' main trading partners last year.

The Fed raised interest rates three times in 2017. Although the central bank has forecast three rate hikes for this year, it will depend on the inflation outlook. There are concerns among some Fed officials that the factors that held down inflation early last year could become more persistent.

Last month, the price of services fell 0.2 per cent after rising for nine straight months. That reflected a 10.7 per cent drop in margin for automotive fuels and lubricants retailing.

Wholesale food prices fell 0.7 per cent, the biggest drop since May, after increasing 0.3 per cent in November. Energy prices were unchanged last month after jumping 4.6 per cent in November.

The cost of healthcare services increased 0.2 per cent last month after being unchanged in November. Those costs feed into the core PCE price index.

REUTERS