U.S. wholesale inflation saw a rise last month, primarily driven by higher energy prices, according to the latest report from the Labor Department. The producer price index, which tracks inflation before it impacts consumers, increased by 0.2% in December compared to November, a slight decrease from the 0.4% gain in the previous month. Year-over-year, producer prices surged by 3.3%, marking the largest jump since February 2023 and up from a 3% gain in November.
The spike in energy prices, with a notable 3.5% increase from November to December, led by a significant 9.7% surge in gasoline prices, contributed to the overall index moving higher. However, food prices experienced a slight dip of 0.1% in December.
Despite the uptick in prices, the overall increases were slightly lower than what economists had predicted, prompting a positive response in U.S. markets following the release of the new inflation data. Excluding food and energy prices, the core wholesale inflation remained unchanged from November but rose by 3.5% from a year earlier.
Wholesale prices often provide an early indication of where consumer inflation might be heading. Economists closely monitor these figures as some components, such as health care and financial services, feed into the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) index.
Inflation surged in early 2021 as the economy rebounded strongly from COVID-19 lockdowns, causing disruptions in various sectors and leading to shortages, delays, and price hikes. In response, the Federal Reserve raised its benchmark interest rate, the fed funds rate, 11 times between 2022 and 2023.
Although inflation has moderated from the highs seen in mid-2022, recent months have shown a stall in progress, with year-over-year consumer price increases remaining above the central bank's 2% target. Consequently, Fed officials indicated in December that they intend to proceed cautiously with rate cuts this year, projecting only two reductions in 2025 compared to the four forecasted earlier in September. The Fed is widely expected to maintain rates at their current levels during the upcoming meeting on Jan. 28-29.
This story has been corrected to reflect that producer prices rose by 3%, not 3.4%, in November compared to a year earlier.
