US producer prices fell for third straight month in December

US producer prices unexpectedly fell for the third consecutive month in December which will likely ease some concerns of inflationary pressures after a stronger-than-expected reading of the consumer price index on Thursday.

The producer price index, which measures changes in prices by domestic producers of goods and services across all sectors, registered a 0.1% decline last month, after a downwardly revised 0.1% decrease in November. Economists had pencilled in a small rebound of 0.1%.

A 0.4% drop in final demand goods accounted for most of December's decline, as food and energy prices both fell, which should feed through to consumer prices in the months ahead.

This meant that the annual rate of PPI inflation came in at 1%, up from a revised 0.8% the month before but well below the 1.3% increase expected.

Meanwhile, core annual PPI inflation – which excludes food and energy costs – slowed to 1.8% from 2.0%, under the 1.9% forecast and the first time under the 2.0% mark since late 2020.

"With the impact of lower oil prices still feeding through the index, producer prices registered their third consecutive decline in December," said economist Matthew Martin from Oxford Economics.

"While the potential for supply disruptions from goods and materials traversing the Red Sea or Panama Canal offer upside risk to producer prices, we still forecast a period of subdued gains in H2 2024 as weak goods demand offsets higher services prices. This should help bolster the case for Fed rate cuts beginning in May of this year."