December PPI Data Presents Relief In The Market! How about the 'Trader' Reaction?


 Prices of producer goods fell unexpectedly in December, giving a positive signal to inflation, the Labor Department reported on Friday.

The producer price index fell 0.1% for the month and ended 2023 with a 1% increase from a year earlier, the Labor Department reported on Friday. Economists quoted by Dow Jones had previously looked for a monthly increase of 0.1%. The index has increased by 6.4% in 2022.

Excluding food and energy, core PPI remained flat compared to estimates of a 0.2% increase. Excluding food, energy and trade services, PPI also rose by 0.2%, in line with estimates. For the full year, final demand measures increased by 2.5% during 2023 after increasing by 4.7% in 2022.

The PPI announcement comes a day after less encouraging news from the Labor Department, which reported on Thursday that the prices consumers paid for goods and services rose 0.3% in December and rose 3.4% on the year. The figure was higher than Wall Street's expectations and still far from the Fed's 2% inflation target.

However, the PPI is generally considered a better leading indicator because it measures the prices companies are getting for intermediate goods and services.

Markets reacted positively to the PPI announcement, with stock market futures paring losses and government bond yields mostly lower.

The PPI measures the prices produced by producers for goods and services, while the CPI measures what consumers pay in the market. Markets are confident signs of declining inflation will prompt the Fed to cut interest rates starting in March, even if inflation is above target.