Core US factory gate prices drop by surprise in December

Factory gate prices in the States were dragged down by more-than-expected last month as energy cost pressures receded.

Nevertheless, key measures of core producer prices experienced unexpected declines, economists pointed out.

According to the Bureau of Labor Statistics, total US final demand prices declined by 0.2% month-on-month in December and were up by 2.5% in comparison to the same period one year ago.

Economists had forecast that prices would dip by 0.1% on the month for an annual pace of price rises of 2.5%.

Core producer prices also fell, by 0.1% (consensus: 0.2%).

Versus the previous month, energy prices were down by 5.4% while those for food rose by 2.6%, with the latter recording their third consecutive monthly increase, reversing a run of declines.

Services trade margins on the other hand declined by 0.3% and those for transportation and warehousing by 0.2%. Airfares were the weak link in the chain among the latter.

Excluding food, energy and trade meanwhile, producer prices were flat in comparison to December, the government said.

Yet personal consumption producer prices, which track pipeline price pressures, dropped by 0.2% on the month - marking a second consecutive fall - and were up by 2.3% on the year.

"Overall, we think the December report points to subdued pipeline price pressures," said Uruci.

"Although a lot of the weakness came from volatile components such as energy and services trade margins, we did not see strong momentum building up in the core measures either."

For his part, Ian Shepherdson at Pantheon Macroeconomics chipped in: "Overall, core PPI inflation looks to have peaked, though note that the capital goods component is now rising by 2.2% year-over-year, up from 1.0% in December 2017 and 0.7% in December 2016.

"The modest near-term threat to CPI and PCE inflation, in our view, comes mostly from services - rent, healthcare - and margin expansion in services, rather than pass-through from core PPI goods."

As of 1445 GMT, the yield on the benchmark 10-year US Treasury note was off by one basis point to 2.70%.