U.S. producer prices fall in December; headline CPI likely to have risen

U.S. producer prices dropped in December, coming in below consensus projections. Producer prices fell 0.1 percent sequentially, as compared with the consensus expectations of 0.2 percent. Stripping energy, food and trade, producer prices rose by a modest 0.1 percent sequentially. The moderation in producer prices was widespread throughout the goods and services categories. In goods, food prices dropped 0.7 percent sequentially, recording a much weaker print than was expected, while energy prices continued to be flat.

However, core goods prices performed better, rising 0.2 percent sequentially. Within services, the softness was stimulated by trade and transportation & warehousing prices, which fell 0.6 percent and 0.4 percent, sequentially. On a year-on-year basis, producer price index came in slightly weaker compared with November at 2.6 percent. Excluding food, trade and energy, PPI rose 2.3 percent.

Personal consumption dropped 0.2 percent sequentially and 2.6 percent on a year-on-year basis. Stripping energy, food and trade, PPI personal consumption remained flat. Overall, today’s report is viewed as revealing some lingering weakness in pipeline price pressures.

“We forecast headline CPI to have increased 0.1 percent m/m (2.1 percent y/y) and core CPI to have increased 0.2 percent m/m (1.7 percent y/y). Today’s PPI report does pose a modest downside risk to our CPI forecast, although we highlight that the mapping between PPI and CPI measures on a sequential basis is not always accurate”, stated Barclays in a research report.

At 18:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -87.74. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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