Supplier Prices Slow But Egg Prices Rise Sharply

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Friday, January 20, 2023

The U.S. measure of supplier inflation fell 0.5 percent in December, the first monthly decline since August. The producer price index (PPI) was up 6.2 percent from a year earlier, lower than expectations of 6.8 percent. The yearly pace was the slowest since March 2021. 

The fall in the PPI was driven by sharply lower energy prices; food prices decreased modestly as lower vegetable, dairy, fish and grain products were offset by significantly higher egg prices.  The core PPI, which excludes the volatile food, energy and supplier margin categories, rose 0.1 percent last month compared with 0.3% in November.

While the Consumer Price Index measures consumer prices, the Producer Price Index is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. The index generally reflects supply conditions and higher producer prices mean consumers will pay more when they buy, whereas lower producer prices likely mean consumers will pay less at the retail level. 

Will lower producer prices should keep the Federal Reserve on track to slow the size of interest-rate increases to a quarter-percentage-point at its next meeting?  Following a half-percentage-point increase in December, Fed Governors are currently of differing opinions on the next step for the central bank.  The Fed Funds rate now stands at a range between 4.25 and 4.5 percent after starting 2022 at near zero.

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