December Sees Surprising 0.1% Drop in PPI

• December PPI decreases by 0.1%, extending the ongoing decline.
• Diesel costs sharply decrease, while gasoline and service expenses increase.
• Core PPI's rise differs from the overall decrease in PPI.

Overview of December’s PPI

In December, the U.S. experienced a 0.1% decrease in the Producer Price Index (PPI) for final demand, continuing a trend observed since October. This contrasts with the unadjusted 1.0% increase in the index for 2023 after a 6.4% rise in 2022.

Breakdown of Final Demand

The 0.1% decrease was primarily driven by a 0.4% decline in final demand goods, particularly affected by a 1.2% drop in final demand energy prices. Final demand services, however, saw no change. Notably, the index for final demand excluding foods, energy, and trade services increased by 0.2%, following modest rises in the past two months.

Detailed Product Analysis

The drop in final demand goods in December was largely influenced by a 12.4% decrease in diesel fuel prices, partially offset by a 2.1% rise in gasoline prices. While overall final demand services prices remained stable, specific sectors such as securities brokerage and investment advice experienced a 3.3% increase.

Contrasts with Core PPI

Despite the overall decrease in the PPI, core PPI, which excludes volatile elements, rose by 0.2% in December. This reflects underlying price firmness away from more volatile sectors, indicating a 2.5% increase for 2023 compared to the 4.7% rise in 2022.

Short-Term Forecast

The current PPI data suggests a bearish short-term outlook, with declining final demand goods prices and steady core PPI figures indicating a potential easing of inflationary pressures. However, the rise in core PPI points to underlying price stability. Traders should closely monitor upcoming economic indicators for informed market direction.