Producer Prices Show Wide Weakness

Yesterday's weakness in import and export prices did in fact point to wide weakness in today's producer price report where the headline, at minus 0.1 percent in December, is 3 tenths below Econoday's consensus for the first decline since August 2016. Ex-food and ex-energy is also at minus 0.1 percent and when also excluding trade services, which were very weak, prices came in at plus 0.1 percent. Year-on-year rates, which had been on the rebound, all fell back with total prices down 5 tenths to 2.6 percent.

Service prices are less sensitive to change than commodity prices and December shows wide weakness with the trade services component down a very steep 0.6 percent for the second straight decline and the third in the last four months. Goods prices were unchanged in December with key readings here showing a 0.7 percent decline for food, no change for energy and a 0.3 percent decline for finished goods with light trucks unchanged, cars up 0.2 percent and computers down 0.7 percent.

Down is definitely the theme of this report which points squarely at disappointment for tomorrow's consumer price report where expectations are already soft, at an Econoday consensus gain of only 0.1 percent and 0.2 percent for the core (ex-food and ex-energy). The absence of inflation is a stubborn theme of the economy.

Recent History Of This Indicator:
Consumer inflation has been very subdued but not at the wholesale level, rising 0.4 percent in each of the past three producer price reports that included gains for service prices which are considered an advanced indication of wider pressures ahead. Prices for legal services showed special pressure in November as well as oil, fruits and vegetables and also light trucks. For December, forecasters see the PPI-FD rising a more subdued 0.2 percent, the less food and energy rate also up 0.2 percent, and again up 0.2 percent for less food, energy and trade services.