Surprisingly, wholesale inflation in the United States is declining as food prices fall

(Bloomberg) — U.S. wholesale inflation fell unexpectedly in December, helped by lower food costs and flat service prices that may help ease concerns about persistent price pressures.

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The producer price index for final demand rose 0.2% from the previous month, according to a Bureau of Labor Statistics report released Tuesday. The median forecast in a Bloomberg survey of economists called for a 0.4% increase. The measure, which excludes food and energy, has not changed since November.

Compared with the previous year, the overall producer price index rose 3.3% and the core measure advanced 3.5%, both the highest since February 2023.

The PPI report precedes the closely watched Consumer Price Index, which is scheduled for release Wednesday from the Bureau of Labor Statistics. In recent weeks, investors and consumers have raised inflation expectations amid strong demand and with the incoming Trump administration threatening to raise tariffs on imported goods.

Treasury yields fluctuated and S&P 500 futures remained higher, while the dollar fell after the numbers.

Economists pay close attention to the Producer Price Index report because many of its components feed into the Federal Reserve’s preferred measure of inflation — the Personal Consumption Expenditures Price Index.

These categories were mixed in December, including no change in hospital care and modest gains in physician services and portfolio management. However, airfare prices jumped by the most since March 2022.

Stubborn inflation in the final months of 2024, coupled with a resilient labor market, has encouraged Fed policymakers to back down on their expectations for rate cuts this year.

Food prices

The Producer Price Index report showed a 0.1% drop in food prices, including a nearly 15% drop in the cost of vegetables. Egg prices, which rose nearly 56% in November due to a worsening bird flu outbreak, have barely risen in the past month. Energy prices rose 3.5%.

Overall commodity prices rose 0.6% after rising 0.7% in the previous month. Commodity prices remained unchanged except for food and energy.

Commodity prices generally began to rise. Crude oil futures rose Monday to a five-month high, while corn futures rose to a seven-month high. These developments follow sharp gains late last year in cocoa and coffee.

Meanwhile, the Producer Price Index report showed that services prices were unchanged, one of the lower readings of 2024 and reflecting declines in margins.

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