New Report Shows Producer Prices Rose in December

A new government report shows a slight uptick in producer prices, hinting at ongoing inflation concerns but not enough to change the expectation that the Federal Reserve will hold rates steady until the second half of the year.

Key Facts:

• The Producer Price Index (PPI) for final demand grew by 0.2% in December, following a 0.4% increase in November.
• PPI jumped 3.3% year-over-year in December, partly due to lower energy prices dropping out of the calculation.
• December’s strong jobs report eased worries about a major economic slowdown.
• The Federal Reserve launched its rate-cutting cycle in September, slashing interest rates by 1 percentage point overall.
• Economists believe the Fed will likely keep rates level until at least June amid labor market resilience.

The Rest of The Story:

Producer prices track the cost of goods as they leave factories, warehouses, and service providers before reaching consumers.

December’s moderate increase points to a steady but not explosive pace of inflation.

That has led some market analysts to predict minimal near-term action from the Federal Reserve, which has already implemented considerable cuts in its benchmark interest rate since last year.

The Fed’s most recent move came in December, with policymakers signaling two more cuts are possible this year, rather than the four initially considered.

The stronger job market—thanks to a sizable addition in nonfarm payrolls—further suggests that the central bank will take a wait-and-see approach.

Some experts worry that potential new tariffs or higher import duties under the incoming administration could push prices higher, along with measures like deporting undocumented workers that might tighten the labor market.

These factors may impact inflation down the road, although the Fed has not offered a clear timeline.

On the other hand, there are signs that the economy still has room to expand.

If wage growth keeps climbing and consumers maintain spending, price levels could remain on an upward path.

At the same time, stable energy costs might help keep inflation from accelerating too quickly.

The Bottom Line:

December’s PPI gain suggests a modest inflation trend.

With a strong labor market, many analysts believe the Fed will hold its current rate stance in the near future.

While concerns linger around possible changes under President-elect Trump, overall economic growth continues to look fairly sturdy.

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The year ahead will reveal whether the Fed’s patient approach can contain inflation without stifling expansion.