Announced this morning, the Producer Price Index increased 0.5% in December, higher than expected; and it increased 3.0% on an annual basis, the same as the annual increase in the previous month. Looking at the various categories, final demand services were relatively strong at the producer level, while final demand energy was relatively weak. The core rate, which excludes food and energy prices, increased 0.7% in December, much higher than expected. On an annualized basis, the core rate increased 3.3%, as expected, and is higher than the revised annualized rate in the previous month.
Overall, a relatively hot inflation print as producer prices for December for the headline and core measures were above expectations, with the core rate much higher than expected. Annualized measures remain elevated, at or above 3%, and some companies may be compelled to pass higher costs onto consumers as tariff costs are still moving through the supply chain as mentioned in some recent earnings reports. The ability of companies to absorb tariff costs will be a key dynamic for the economy and markets in the months ahead, especially as some of the expected tailwinds from the OBBBA begin to take shape.
In all, the 10-year US treasury yield is little-changed following the report and equity futures are lower as we head into the market open.
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