Producer Price Index Slows More Than Expected To 1% In December, Signals Softening Price Pressures

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Price pressures on goods and services bought by U.S. producers softened again in December, more than what economists expected.

The Producer Price Index (PPI) was 1% higher in December 2023 compared to the previous year, although missing the 1.3% predicted by the economist consensus. This development follows unexpectedly high Consumer Price Index (CPI) inflation reported Thursday that challenged market beliefs over a Fed rate cut in the first quarter of the year.

Key Highlights From December PPI Report:

  • The headline PPI index rose from a downwardly revised 0.8% year-on-year in November to 1% in December, missing economist forecasts of 1.3%.
  • On a monthly basis, headline producer inflation decreased by 0.1%, softening from the flat reading in November and missing the expected 0.1% increase.
  • The core PPI index, which excludes energy and food inputs, fell to 1.8% year-on-year, down from 2% in November, below economist forecasts of 1.9%.
  • On a monthly basis, the core producer index was flat as in November, and well below the expected 0.2% increase.
Market Reactions

During premarket trading on Friday, futures for major U.S. stock averages all moved lower, with S&P 500 contracts down by 0.2%.

Losses in the equities of some major U.S. banks, including Bank of America Corp. (NYSE: BAC) and Wells Fargo Company Inc. (NYSE: WFC) as well as in airline stocks such as Delta Air Lines Inc. (NYSE: DAL) and American Airlines Group Inc. (NASDAQ: AAL), weighed on the broader market. This was due to disappointing fourth-quarter earnings and outlooks.

JP Morgan Chase & Co. (NYSE: JPM) also missed its fourth-quarter numbers but traded higher in premarket trading after the bank announced it expects about $90 billion in net interest income for 2024.

Minutes after the PPI release, stocks trimmed losses, as U.S. Treasury yields moved lower. The 10-year yield fell 4 basis points to below 4%.

Commodities saw a broader rise, primarily driven by rising crude oil prices, which were up by over 2%, amid growing tensions in the Red Sea. Overnight, U.S. and U.K. forces conducted airstrikes against Houthi rebel targets in Yemen in response to repeated attacks by the Iranian-backed group on ships in the Red Sea.