The U.S. Bureau of Labor Statistics reported on Wednesday that wholesale price growth cooled markedly in December, suggesting aggressive rate hikes by the Federal Reserve may finally keep price pressures in check.
Compared with a year earlier, the producer price index — a key measure of inflation that measures what companies pay for goods and services before they reach consumers — rose 6.2%. That was well below the revised 7.3% gain reported in November.
The latest data fell well short of Wall Street expectations: Economists polled by Refinitiv forecast annual growth of 6.8%.
The slower pace of growth marked the ninth straight decline in the 12-month reading from a peak of 11.7% in March. It was also the slowest annual increase since March 2021.
Producer prices fell 0.5% compared with November, the biggest monthly drop since April 2020, when lockdowns early in the pandemic sent demand for goods tumbling. It was also the first monthly decline since last August.
The decline was largely driven by lower energy prices, which fell 7.9% on the month after a revised 3.2% drop in November. Wholesale energy prices have fallen in four of the past six months since peaking in June, falling more than 21% in the months since.
Food prices fell 1.2 percent in December compared with a month earlier, and growth slowed to 14.3 percent last year from 15.4 percent in November.
It was the first monthly drop in food prices since inching down 0.1% in August and the biggest monthly drop in two years.
Excluding often volatile food and energy prices, the core PPI rose 5.5% in the year to December and was up 0.1% from November. Both increases were lower than the previous month.
That’s all good news for the Fed, which reported at its recent rate-setting meeting that it saw signs of a slowdown in inflation. The central bank said it would start slowing the pace of rate hikes, starting with a 0.5 basis point increase in December, rather than the three-quarters basis point hike it had introduced at its previous four policy-setting meetings.
PPI is not the only sign of moderating inflation.
The consumer price index — the government’s main measure of prices Americans pay for goods and services — also showed a 12-month increase in December, with prices falling compared with November.
The latest reading for November of the personal consumption expenditures price index (PCE), the Fed’s preferred measure of inflationary pressures, also showed that price pressures are moderating.
But it’s unclear how long this good inflation news will last, given that the recent slowdown in inflation has been largely driven by lower energy prices.
Energy prices have been largely driven by prices in global commodity markets and have been impacted by issues such as a surge in coronavirus cases in China, which has led to a drop in demand. Energy prices were also held down by fears of a recession in several major economies around the world as the recession reduced demand for energy.
But some forecasts of lower recession risks and an improved Covid outlook in China could boost energy demand again and lead to higher prices.