US Producer Prices Drop by Most Since Start of Pandemic
January 23, 2023
The producer price index (PPI) fell 0.5% in December, the most since April 2020, extending a months-long slowing in inflationary pressures.
- On a year-over-year basis, the PPI was up 6.2%.
- The median estimates in a Bloomberg survey of economists called for the index to fall 0.1% from a month earlier and rise 6.8% from December 2021.
- The decline was driven by a sharp drop in goods prices, notably energy and food.
- Excluding these components, core PPI rose 0.1% in December and 5.5% from a year earlier.
Separate data are also pointing to an easing of cost pressures. The Institute for Supply Management (ISM) gauge of prices paid for raw materials fell in December to the lowest level since April 2020. The New York Fed’s measure of prices paid by factories in the state also fell to a more than two-year low.
While slowing wholesale prices ease pressure on the Federal Reserve’s battle against inflation, the war is far from over.
- A tight labor market and robust consumer demand for services are providing strong headwinds for the Fed.
- Nonetheless, the Fed has shifted from 75 basis point increases to 50 bps and is expected to ratchet down to 25 bps at its next meeting on February 1.
- Such a move would lift the fed funds rate to a new target range of 4.50% to 4.75%.