Cheaper services weigh on the US producer prices; jobless claims up

WASHINGTON: US producer prices fell for the first time in nearly 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018.
Other data on Thursday showed initial claims for unemployment benefits increasing for the fourth straight week to more than a three-month high. That probably does not signal weakness in the labour market as the number of Americans receiving jobless benefits is at levels last seen in 1973. Bitter cold and snow in parts of the country likely kept some workers at home, accounting for last week’s jump in jobless claims.
Weak wholesale prices could stoke fears that the causes of weak inflation will become more persistent and prompt the Federal Reserve to be more cautious about raising interest rates this year.
“Factories aren’t producing as much inflation, which is sure to bedevil the doves at the Fed who are worried about too low inflation,” said Chris Rupkey, chief economist at MUFG in New York.
The US central bank is forecasting three rate hikes for 2018. It raised rates three times last year.
The Labor Department said 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.
A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 per cent last month. The so-called core PPI increased 0.4 per cent in November. It rose 2.3 per cent in the 12 months through December after increasing 2.4 per cent in November.
The PPI data came on the heels of a report on Wednesday showing a sharp moderation in import prices in December. While the correlation between those two reports and the consumer price index is weak, they underscore the challenge for the Fed to achieve its 2 per cent inflation target.
The dollar fell against a basket of currencies on the wholesale inflation data and expectations that the European Central Bank was preparing to reduce its monetary stimulus programme. Prices of US Treasuries fell, while stocks on Wall Street rose broadly.
The price of services fell 0.2 per cent in December after nine straight monthly rises. The decline reflected a 10.7 per cent drop in margins for automotive fuels and lubricants retailing.
Wholesale food prices recorded their biggest drop since May, while energy prices were unchanged. 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.
In a second report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 261,000 for the week ended January 6, the highest level since late September. Economists had forecast claims falling to 245,000 in the latest week. — Reuters