01/12/2024

U.S. Producer Prices Unexpectedly Fall

It appears goods deflation is underway

In December, U.S. producer prices unexpectedly fell amid declining costs for goods such as diesel fuel and food, suggesting inflation would continue to subside and allow the Federal Reserve to start cutting interest rates this year.

The report from the Labor Department on Friday also showed prices for services were unchanged for the third straight month, another boost in the U.S. central bank's fight against inflation. With supply chains mostly normalized after severe disruptions during the COVID-19 pandemic, services are now at the core of the inflation battle. Services inflation, partly driven by a tight labor market, is less responsive to rate hikes.

"The inflation pipeline is clearing and consumer prices will gradually get to the Fed's 2 percent target," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

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