Wholesale prices rose less than expected in December, calming some fears that a resurgence of U.S. inflation was on the horizon.
“A better-than-expected PPI in December will be positive for markets, which have been concerned about higher inflation readings over the past few months,” wrote Eugenio Alemán, chief economist at Raymond James, in reaction to the report.
Excluding the volatile food and energy categories, the index showed no increase in producer prices last month, a sign of some relief ahead of Wednesday’s critical consumer inflation report.
“Weakness was widespread across most components, with the exception of energy, where we saw a notable increase in gasoline prices last month and some strength in airline prices,” said Charlie Ripley, investment strategist. senior at Allianz Investment Management.
Energy prices rose 3.5% from November levels, the largest monthly increase since February 2024. Meanwhile, domestic and international airline prices rose 7.2% month over month. Airlines directly influence the Federal Reserve’s preferred core PCE inflation gauge, which will be released later this month.
“We expect a broader range of results following tomorrow’s release of the latest consumer price data,” Ripley said.
December consumer prices are expected to remain sticky, with the core CPI expected to have increased 3.3% annually for the fifth consecutive month. Tariff uncertainty remains a key issue for the rest of the year.
“The tariff increase proposed by the incoming administration adds to inflation concerns,” said Seema Shah, chief global strategist at Principal Asset Management.
“Estimates range from an exceptional 0.5% to 1.5% rise in inflation due to the tariff increase alone. Of course, central banks typically consider one-off tariff increases, unless they lead to an increase in inflation expectations. In particular, since the “One- and two-year measures of inflation expectations, both market-based and survey-based, have increased slightly.”
Therefore, “the Federal Reserve cannot ignore the risks of upward inflation facing the US economy,” in Shah’s view.
“Recent economic strength has combined with a growing threat of tariffs to increase the risks of upside inflation.”