Core PPI, which excludes food and energy, was flat compared to expectations for a 0.2% rise. PPI, which excludes food, energy and trade services, also rose 0.2%, in line with expectations. For the full year, the final demand index, excluding food, energy and trade services, increased by 2.5% in 2023, after increasing by 4.7% in 2022.
The PPI announcement comes a day after less encouraging news from the Department of Labor, which announced Thursday that the prices consumers pay for goods and services rose 0.3% in December, up 3.4% from a year earlier. That was better than Wall Street expected, but still far from the Fed’s 2% inflation target.
However, PPI is generally considered a good leading index because it measures the pipeline price that companies earn for intermediate goods and services.
The market reacted positively to the PPI announcement, with stock futures paring losses and US Treasury yields nearly falling.
According to the announcement, final demand goods prices fell by 0.4% in December, the third consecutive month of decline. Diesel fuel prices fell by 12.4% even as gasoline rose by 2.1%.
On the service side, prices remained unchanged for the third consecutive month. Prices in areas related to financial advice rose by 3.3%, while profit margins in wholesale machinery and vehicles fell by 5.5%.
PPI measures the price that producers pay for goods and services, while CPI measures the price that consumers pay in the market. CPI also includes imports, but PPI does not. However, PPI covers a wider range of goods and services.
Markets are confident that the Fed will start cutting interest rates starting in March, even though inflation is above target, as signs of inflation fade.
Traders in the federal funds futures market are pricing in a roughly 70% chance of a first-quarter rate cut at the Federal Open Market Committee meeting on March 19-20, according to CME Group. fed watch tracker. The market expects five more rate cuts from there, bringing the benchmark federal funds rate down to its target range of 3.75% to 4%.
But in recent days, various Fed officials have made statements that seem to counter the market’s positive outlook. Additionally, JPMorgan Chase & Co. CEO Jamie Dimon warned Friday that high government deficit spending and other factors could further stiffen inflation and push interest rates higher than markets expected. did.