The latest Producer Price Index (PPI) numbers from the U.S. Bureau of Labor Statistics just dropped, and they’re telling us a familiar story: energy costs keep jolting prices higher, but services are looking mixed. Let’s unpack what happened in December — and what it could mean for inflation and the economy in 2025.
Quick Hits
- Headline PPI (Final Demand): Up 0.2% for December, after +0.4% in November.
- Year-over-Year: PPI rose 3.3% in 2024, versus a +1.1% pace in 2023. So, yes, producer-level inflation is running hotter than a year ago.
- Goods vs. Services: Goods prices climbed 0.6%, while services stayed flat overall. Within goods, energy is the big culprit — up 3.5%.
1. Energy Still the Star (or Villain?)
When in doubt, watch energy:
- Gasoline surged 9.7% in December.
- Natural gas soared 57.7% (for unprocessed energy materials).
That’s huge. And it drags up the overall PPI because it affects everything else — factories run on power, transportation needs fuel, etc.
Why This Matters
Energy is typically volatile, but big spikes can eventually push up consumer prices, too. If oil and gas remain high or move even higher, we might see more inflation pressure trickling into the rest of the economy.
2. Services Mixed: Transportation Pops, Other Segments Drop
Producer prices for services were unchanged in December, but it’s not a boring story:
- Transportation & Warehousing soared 2.2%.
- Passenger Transportation alone jumped 7.2% — big for airlines and related sectors.
- Other areas, like traveler accommodation services, slid -6.9%, and loan services dipped as well.
Why This Matters
Flat services inflation means not every cost is rising. But pockets like passenger transport are still getting more expensive. From a Federal Reserve perspective, this is a mixed bag — some areas are cooling, others are heating up.
3. Core PPI: A Measured, But Steady, Climb
Core PPI — which cuts out the roller coaster of food, energy, and trade — rose 0.1% in December. That’s the same as November, bringing core’s overall 2024 increase to 3.3% (up from 2.7% in 2023).
Why This Matters
Core inflation is often seen as a more stable reflection of underlying inflation. At 3.3% year-over-year, it’s above the Fed’s target for overall consumer inflation, so officials might stay cautious on how quickly they pivot on interest rates.
4. Intermediate Demand Tells the Next Chapter
The PPI also tracks “intermediate demand,” i.e., earlier stages of production. Think of it as a sneak peek of future price movements. Almost all these indexes rose:
- Stage 4 (closest to the final product): +0.4% (largest jump since July).
- Stage 3: +0.3%.
- Stage 2: +1.5% (biggest driver: gas fuels).
- Stage 1: +0.2%.
Why This Matters
Rising costs earlier in the supply chain can cascade into final consumer prices if producers pass them along. The jump at Stage 2 is especially notable — gas fuels, crude petroleum, and legal services soared. That might flow downstream in coming months.
5. Food Prices a Mixed Bag
- Fresh and dry vegetables: -14.7% (a steep decline)
- Meats: modest uptick
- Fruits: slight rise
We all know grocery costs matter to everyday folks’ budgets. A big monthly dip in some veggies is good news for your salad bill, but overall food index was only down 0.1% — so it’s not a major relief across the board.
So, What’s the Bottom Line?
- Energy is King: As usual, energy is a prime mover in producer prices. If it keeps rising, headline PPI may remain elevated.
- Core Inflation Isn’t Dead: At +0.1% monthly, core PPI isn’t spiking, but it’s still running high year-over-year.
- Mixed Services: Some big service jumps (transportation, warehousing) offset declines in other segments. Net effect: zero change in final-demand services.
- Fed Watching: The Fed looks closely at core measures. They won’t love a 3.3% annual rise, but it’s not a four-alarm fire either.
Put simply, inflation at the producer level is pushing upward, but not exploding. That’s likely to keep policymakers on their toes — neither too hawkish nor too dovish.
What to Watch Next
- Energy Prices: If crude oil or natural gas keep spiking, the entire supply chain feels it.
- Intermediate Demand: Large jumps now can mean higher final prices in a month or two.
- Service Sector: Transportation is hot right now — could lodging or other segments follow suit later?
- Consumer Spending: How do higher producer costs flow into the CPI and consumer wallets?
Final Thoughts
The December PPI release shows inflation hasn’t vanished. It’s shifting: energy is driving big moves, some food prices are up, others are down, and services are all over the place. For investors, that means watching commodity markets closely and tracking corporate margins — companies might try to pass on these rising costs to customers.
For the rest of us, keep an eye on grocery and gas station receipts in the coming weeks. Producer costs can trickle down to everyday goods, though it can take time.
Ultimately, the December numbers hint that we’re not done wrestling with inflation pressure, but at least it’s not running away uncontrollably — so far.
