December Wholesale Inflation Falls
Inflation at the wholesale level in the US moderated more than expected in December, according to the Labor Department. The producer price index, which measures inflation before it reaches consumers, fell 0.1% from the previous month. This indicates that price pressures within the economy are gradually fading. Annual prices, however, remained up 1%, slightly higher than November’s 0.8%.
Lower Figures Than Predicted
The recorded figures are lower than what Refinitiv economists had predicted. They expected a monthly gain of 0.1% and an annual figure of 1.3%. The fact that these figures were not met suggests a further decline in inflation.
Core Prices Unchanged
In another indication of decreasing inflation, core prices, which exclude food and energy, remained unchanged for the month. This is lower than the estimated 0.2% increase. On a 12-month basis, core prices were up 1.8%, down from the previous month’s 2.2%.
Implications for the Federal Reserve
The consecutive reports of moderate inflation will have significant implications for the Federal Reserve. As the central bank tries to cool the economy, it has raised interest rates at the fastest pace in decades, with 11 rate hikes in just 16 months. However, policymakers have recently suggested that rate hikes are over and that they will soon pivot to cutting rates. Although little guidance has been given on when this reduction might happen, a majority of investors are already pricing in a quarter-point reduction as early as March.
Conclusion
The recent data on wholesale inflation indicates that price pressures within the US economy are gradually fading. Lower figures than predicted and unchanged core prices further support the notion of decreasing inflation. These reports will have significant implications for the Federal Reserve, which has been raising interest rates at a rapid pace. Investors are already anticipating a rate reduction in the near future.