The numbers: US wholesale prices fell 0.5% in December, mainly due to cheaper food and gasoline, extending a string of lows and adding further evidence that high inflation is fading.
It was the biggest drop since April 2020, when the US economy shut down to contain the coronavirus outbreak.
Economists polled by The Wall Street Journal had predicted a 0.1% drop.
The low level gave a small boost to US stocks in premarket trades and sent 10-year Treasury yields slightly lower.
Wholesale price increases over the past 12 months, meanwhile, slowed to 6.2% from 7.3% in the previous month and a peak of 11.7% last spring. That is the lowest level in nine months.
A separate measure of wholesale prices that removes volatile food and energy costs rose 0.1% last month, the government said on Wednesday.
The rise in these so-called core prices slowed down from 4.9% to 4.6% in the past year. That is also the lowest level in a year.
Main data: Wholesale energy costs fell nearly 8% in December on the back of falling oil prices.
Another good sign is that the cost of food has also fallen by 1.2%, the biggest drop in two years.
However, Americans are still paying a lot more to feed their families than they were a few years ago.
While the cost of goods fell, service prices increased slightly. Services inflation has risen sharply over the past year and is harder to reverse, which is of great concern to the Fed.
Inflation further down the pipeline sent mixed signals.
Wholesale costs of semi-finished products fell for the sixth month in a row, but the more volatile cost of raw materials rose sharply.
The PPI report shows what companies pay for commodities such as grains, fuel, metals, wood, packaging, and so on. These costs are often passed on to customers at a retail level and give an idea of whether inflation is rising or falling.
Big picture: The biggest increase in US inflation in 40 years is tapering off, but prices are still rising faster than most workers’ salaries.
The Federal Reserve is trying to bring the annual increase in inflation back to pre-pandemic levels of 2% or less by raising interest rates sharply.
Still, it could take a year or more to get back to that level, putting the US at potential risk of a recession.
Looking forward: “While inflation is high, producer prices are at their peak and moving in the right direction,” said chief economist Rubeela Farooqi of High Frequency Economics.
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
were set to open higher in Wednesday trades. Shares fell on Tuesday.