2024, the year of sharp acceleration. Services, accounting for two-thirds of PPI, are where inflation is festering and accelerating.
By Wolf Richter for WOLF STREET.
This time, the prior months’ data of the Producer Price Index were revised up by relatively small amounts, unlike the whopper up-revisions over the past four months. So November’s overall PPI reading was revised up to a year-over-year increase of 3.00%, from 2.98% reported a month ago. So that lack of big up-revisions was refreshing.
But then the December PPI, as reported today by the Bureau of Labor Statistics, accelerated to an increase of 3.31%, driven largely by services, which account for two-thirds of the overall PPI, and which accelerated to 4.03%. Both increases were the worst since February 2023.
The year of sharp acceleration: Overall PPI accelerated from 1.06% in December 2023 to 3.31% in December 2024, driven by services, which accelerated from 1.80% in December 2023 to 4.03% in December 2024.
The PPI tracks inflation in goods and services that companies buy and whose cost increases they ultimately try to pass on to their customers.
On a month-to-month basis, the PPI for final demand rose by 0.22% (2.7% annualized) in December from November. The six-month average has been around the 3% line for the past six months.
The plunge in energy prices from mid-2022 has stopped. It had reduced the overall PPI increases into the pre-pandemic range, and papered over the inflationary forces in services. But over the past three months, energy prices stopped dropping. In December, the energy index jumped by 3.5% from November, but thanks to the plunge earlier in the year was still down 2.0% from a year ago.
Food prices declined by 0.1% in December from November, after a 2.9% spike in the prior month, and on a year-over-year basis rose by 4.7%.
“Core” PPI, which excludes food and energy, accelerated to 3.55% year-over-year in December, the fastest pace since February 2023, up from 3.47% in the prior month.
On a month-to-month basis, Core PPI edged up 0.04% (0.5% annualized), after a series of hefty increases in the prior months.
The Services PPI, which accounts for two-thirds of the overall PPI, accelerated to 4.03% year-over-year in December, the fastest pace since February 2023, and up from 3.91% in the prior month.
Month-to-month, the Services PPI edged up by 0.5% annualized (+0.04% not annualized) after a series of hot increases over the past four months, ranging from +3.1% in November to +6.0% in August.
The “Finished core goods” PPI rose by 2.58% year-over-year in December, an acceleration from 2.48% in November, and the fastest increase since December 2023. On a month-to-month basis, the index rose by 1.9% annualized.
The index has more or less gently accelerated over the past six months. But the goods sector is not where inflation is a big issue at the moment.
The PPI for “finished core goods” includes finished goods that companies buy but excludes food and energy products.
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The bond “market” is telling us as much…
“Hi Yo silver…away!”.
For some strange reason I find this report to be good news.
Bit of a bounce on that “soft landing”.
There was no landing. Still flying at 40,000 feet.
Financial media is almost uniformly pushing the “lower than expected” angle, using headline adjectives like “tame” and ” subdued.” You would think producer inflation had gone down if you weren’t paying attention.
Noted the same. I didn’t look at the details until now. What propaganda!
Gurus on fintwit saying the same thing, inflation is cooling. No one thinks a bear market could ever happen again, Fed is just too good at what they do, lol.
Come on Jerome. Time for a rate cut.
The main stream media are “304”s in street language.
Almost all US media is owned by six corporations and they spin everything based on their needs, which include advertisers, click through rates, political manipulation, and portfolio burnishing.
Correct, with advertising clients being one of the high priorities in their biased and agenda-driven reporting.
Whatever spin will result in their financial industry advertising clients receiving the highest volume of trading transactions, that is the angle they will take.
No wonder so many people are actively seeking out alternative sources for information other than the MSM.
Pea Sea-
You captured my surprise perfectly when I saw the Dow and RSP up, and going to MSMedia, saw “lower than expected” talk
Wonder how long it will take for the stock market to appreciate the risks that the bond market is sniffing out…
Wolf, thanks for giving us the real data and charts so that we can see it. I need to delete CNBC from my phone. Their headlines are always misleading and biased.
I always enjoy your post.
Thank you for the informative data analysis Wolf I have pivoted my portfolio to fidget spinners I think they will do well in this new inflationary regime
Fidget spinners are very 2020, you should be stacking Hawk Tuah coin.
Me too! Looking forward to Wolf’s CPI breakdown as well!
I just spit out my salad. Thanks for the hearty laugh.
In other words, it tripled.
“PPI accelerated from 1.06% in December 2023 to 3.31% in December 2024,”
That’s the real story, thank you!
I am very glad to find this site, the mainstream media has an agenda and it is near impossible to trade stocks listening to their skewed reporting. It is refreshing to find just the facts.
It’s getting harder and harder to believe the Fed has the conviction to achieve 2% inflation in the foreseeable future. They probably need at least 3-4% inflation to avoid recession. Everybody admits this, except the Fed.
I wish they’d make 2% inflation a real priority at this time when unemployment is very low. If the goal is to balance inflation and employment, the course should be obvious when inflation is too high and unemployment is too low. What am I missing?
Recessions are not disasters, unless they are continually avoided with monetary or fiscal subsidies.
What am I missing?
The perspective of the next administration…
But is it transitory ? Inquiring minds would love to Know.
Bond market knows
Noticed some big increases in insurance premiums as the New Year takes hold. My Blue Cross/Blue Shield premiums just went up 12%. It ate up nearly half of my COLA. Add in inflation and I’m losing take home pay. Most people are in the same boat. They think they are getting a pay raise and are actually getting squat.
My Anthem “EPO” plan up almost 20%. I’m switching to Canada
So with PPI increasing, as an individual this is just another reason of many to tighten my belt for 2025. I admittedly was quite the drunken sailor in 2024. I held off from 2020 through 2023.
As onshoring of manufacturing has continued, might this be a disproportionately large component of PPI increases? I’m all for onshoring, and think taking an inflationary hit from say 2% to 3% is WELL worth it. But can an onshoring/PPI relationship even be evaluated?
CNBC and Yahoo News reported better-than-expected results, causing the market to initially rise. Are they purposely setting lower expectations to keep the market rising? Lol
A lot of people are heavily invested in both keeping real estate prices high and stock prices high. Some likely because they need plenty of greater fools to rescue their positions for a fast exit.
Lower for Longer!!
Doesn’t the bond market historically figure things out faster than the stock market?
I think I need to charge more for the services I provide, so that I can afford to pay for everyone else’s services!
MW: U.S. budget deficit swells to record $711 billion in first quarter of fiscal year
Just a minor detour in Jerome’s race to the bottom.
Jerome’s replacement is likely to not as good and extremely easy to manipulate.
👍👍 @enlightenlibertarian,
That should be the real headline !!!