The Bureau of Labor Statistics (BLS) reported that producer prices fell 0.1 percent in December, with lower food and energy prices driving the decline. Both food and energy costs for finished goods dropped 0.8 percent, reflecting the continued easing of both in recent months. When food and energy costs are excluded, the core PPI rate rose 0.3 percent. Year-over-year growth rates currently stand at 4.8 percent for all finished goods and 3.0 percent for core goods.
For manufacturers, producer prices declined 0.4 percent for the month, with costs up 6.0 percent since December 2010. The yearly change, though, represents an improvement from earlier in the year. In December, the sectors experiencing the largest monthly declines were petroleum and coal products (down 2.7 percent), primary metals (down 0.9 percent), textile mills (down 0.8 percent), leather and allied products (down 0.5 percent) and food manufacturing (down 0.4 percent).
The cost of intermediate and crude goods also fell, by 0.5 percent and 1.1 percent respectively. This, too, was led by declines in food and energy prices.
Overall, this report suggests that inflationary pressures remain modest , with recent easing helping to ease the concerns that many manufacturers have had – particularly in the first half of 2011 – about pricing pressures. Nonetheless, many expect raw material and energy costs to rise in 2012, as seen in yesterday’s Empire State Manufacturing Survey and in other similar analysis. Indeed, the core PPI inflation rate edged higher each month in 2011, from 1.6 percent in January to 3.0 percent in December – a sign that higher costs are moving beyond food and energy, albeit not at an alarming pace.
Tomorrow, the BLS will report data on consumer prices.
Chad Moutray is Chief Economist, National Association of Manufacturers.