December 2017 Producer Price Index

Prices paid by wholesalers and producers fell during December according to the Bureau of Labor Statistics.  Their Producer Price Index (PPI) declined 0.1 percent in the period.  Versus a year earlier, this measure decelerated to 2.6 percent from 3.1 percent in November.  Core-PPI, which removes food and energy because of their volatility, fell 0.1 percent to end the year and slowed to 2.3 percent from 2.4 percent on a year over year basis.

Diving deeper into the headline tally reveals a split between goods and services, but neither category increased.  The goods portion of the report held steady after jumping 1.0 percent in November.  Services declined 0.2 percent in December after rising in nine consecutive months. 

Earlier stages of output were mixed.  Processed goods for intermediate demand rose 0.5 percent in the period, and the year-over-year change decelerated to 5.1 percent from 5.3 percent in November.  Unprocessed goods for intermediate demand increased 2.1 percent at the end of the year, but that is slower than the 3.2 percent tally a month earlier.  In the past year, prices for this earliest stage of goods rose 5.2 percent.  Finally, prices for services declined 0.1 percent as 2017 came to a close, and the year-over-year figure decelerated to 2.9 percent from 3.2 percent.

After increasing monthly since July 2017, PPI’s year-over-year tally decelerated in December.  A single month setback is not enough to suggest the upward trend is broken, but inflation growth has come in fits and starts during the current economic expansion, so it is possible that another bout of disinflation is starting.  If the slowing continues in the PPI tally and begins showing up in consumer measures of inflation, the number of Federal Reserve’s interest rate hikes might be fewer than expected in 2018.