WASHINGTON: US producer prices edged up in December as a rise in the cost of goods was offset by weakness in services, the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rates unchanged this year.
The report from the Labour Department on Wednesday came in the wake of data on Tuesday showing a small rise in consumer prices in December. Inflation has remained tame even as the unemployment rate has dropped to near a 50-year low and the longest economic expansion on record entered its 11th year.
“There is still little sign of any significant rise in price pressures at the start of the inflation pipeline, underlining our view that the Fed will keep interest rates on hold for the foreseeable future,” said Andrew Hunter, a senior US economist at Capital Economics in London.
The producer price index for final demand ticked up 0.1 per cent last month after being unchanged in November, the government said. In the 12 months through December, the PPI increased 1.3 per cent after gaining 1.1 per cent in November.
For all of 2019, the PPI rose 1.3 per cent. That was the smallest gain since 2015 and followed a 2.6 per cent increase in 2018.
Economists polled by Reuters had forecast the PPI climbing 0.2 per cent in December and advancing 1.3 per cent on a year-on-year basis.
Excluding the volatile food, energy and trade services components, producer prices also nudged up 0.1 per cent in December after being unchanged in November. The so-called core PPI rose 1.5 per cent in the 12 months through December after gaining 1.3 per cent in November. Core PPI increased 1.5 per cent in 2019, also the smallest advance since 2015, after rising 2.8 per cent in 2018.
The Fed, which has a 2 per cent annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.6 per cent on a year-on-year basis in November, and undershot the Fed’s target in the first 11 months of 2019. December PCE price data will be published later this month.
The US central bank last month left interest rates steady and signalled monetary policy could remain on hold at least through this year after it reduced borrowing costs three times in 2019. Inflation could remain tame, with the government reporting last Friday that the annual increase in wage growth retreated to below 3.0 per cent in December even as the unemployment rate held at 3.5 per cent and a broader measure of labour market slack dropped to a record 6.7 per cent.
Inflation has been muted despite the United States imposing tariffs on billions of dollars worth of imported Chinese goods. President Donald Trump and Chinese Vice Premier Liu He signed an initial trade deal on Wednesday, a first step toward defusing an 18-month trade war.
In a separate report on Wednesday, the New York Fed said its business conditions index rose to a reading of 4.8 in January from 3.3 in December. It said measures assessing the business outlook over the next six months “suggested that optimism about future conditions remained restrained.”
While a third report from the Fed showed the economy “continued to expand modestly in the final six weeks of 2019,” the central bank said manufacturing activity was “essentially flat” in most of the 12 districts. The Fed also noted that “tariffs and trade uncertainty continued to weigh on some businesses” in many districts.— Reuter
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