Supplier-level inflation cooled significantly in late 2022, increasing signs that pricing pressures in the US economy were easing.
The producer price index, which broadly reflects supply conditions in the economy, rose 6.2% in December from a year earlier, the Labor Department said on Wednesday, the slowest annual pace since March 2021. That was less than the revised increase of 7, 3% in November and well below the 11.7% rise in March 2022, the fastest pace since PPI records began in 2010.
The core PPI, excluding the often-volatile food, energy and supplier margin categories, rose 4.6% year over year in December, up from 4.9% in November, the department said.
On a monthly basis, the December PPI fell 0.5% from November, the first monthly decline since August. Supply-level energy prices fell sharply last month, while food prices fell slightly. The core PPI, excluding the often-volatile food, energy and supplier margin categories, rose 0.1% over the past month, compared to 0.3% in November.
Vegetable, dairy, fish and grain prices fell last month from November, while chicken egg prices rose sharply, the department said.
“Producer-level inflation should fall below 2 percent by the second quarter of the year,” said Matthew Martin, US economist at Oxford Economics.
Economists polled by the Wall Street Journal had estimated December producer prices to rise 0.1% from the previous month.
Previously: The way markets usually work is that when demand increases, prices go up, and that motivates producers to increase supply. WSJ’s Dion Rabouin explains why the age-old economic equation of supply and demand isn’t working right now. Illustration: David Fang
Producer prices are falling as other measures of inflation have eased in recent months. The Labor Department said last week that consumer prices rose 6.5% year-on-year in December, the sixth straight month of deceleration from a peak of 9.1% in June.
The Federal Reserve is likely on track to reduce the magnitude of rate hikes to a quarter of a percentage point at its February 1 meeting, after raising them by half a percentage point in December as part of its efforts to cool the economy and bring down high inflation . The Fed has aggressively raised its interest rate from near zero to a range between 4.25% and 4.5% over the past year.
“With prices still rising at a pace well above target, interest rates need to get higher and tighter,” said Rubeela Farooqi, chief economist at High Frequency Economics.
PPI captures what suppliers charge companies and other customers for. The metric generally reflects changes in costs faced by manufacturers combined with the pricing power they have, which can signal the future direction of consumer prices.
Markups by manufacturers expecting their own costs to rise contributed to more than half of 2021 inflation, Kansas City Fed researchers found in a paper released last week.
Write to Gabriel T. Rubin at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8