Plummeting energy prices drove down U.S. producer prices in December, lowering expectations that the U.S. Federal Reserve’s 2% inflation target would be met this year.
The Labor Department on Friday said its producer price index fell 0.2% after increasing 0.3% in November. For all of 2015, producer prices fell 1%, the weakest since the series started in 2010, after rising 0.9% in 2014.
Economists had forecast the PPI falling 0.2% last month and 1% from a year ago, according to CNBC.
“We expect PPI inflation to remain weak for some time, as energy price declines are ongoing and as the rising dollar, especially the appreciation against emerging markets, will continue to weigh on import prices,” Rob Martin, an economist at Barclays, told the Wall Street Journal.
The weak data suggests that inflation isn’t going to increase enough for the Fed to raise rates again this spring, CNBC said. The central bank in December finally started to raise rates after keeping them at historical lows for nearly a decade.
“Coming on the heels of a report on Thursday showing a steep drop in import prices in December, weak producer prices suggest that an anticipated rise in inflation will probably be insufficient to breach the Fed’s 2 percent target,” CNBC said.
Last month, the cost of services rose 0.1% after November’s 0.5% increase, the Labor Department said. Energy prices fell 3.4% after dropping 0.6% in November. Wholesale food prices fell 1.3% after rising 0.3% the prior month. Goods prices fell 0.7%, declining for a sixth straight month.
“Medical and other services are the biggest threat to core inflation this year, not goods prices, which are no threat at all,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Core PPI — a key measure of underlying producer price pressures that excludes food, energy and trade services — rose 0.2% last month after rising 0.1% in November. For the 12 months through December, core PPI rose 0.3%.