These are much higher than expected figures and we’re seeing a hawkish reaction in the markets with upside in the dollar and Treasury yields, and downside in stocks and precious metals.

The agency notes that the December increase in prices for final demand can be traced to a 0.7-percent advance in the index for
final demand services. Prices for final demand goods were unchanged.

Fed Chair Powell mentioned that they expect the Core PCE Y/Y to be around 3.0% in December. This PPI report is unlikely to trigger big market moves as we await next week’s data, with the US NFP report being the main highlight.

The market is pricing 52 bps of easing by year and that’s unlikely to change much with this report. The Fed upgraded the current economic outlook in their last policy statement to reflect the improvement in the data. In December, the Fed projected just one cut in 2026, so we will need more labour market deterioration or bigger than expected fall in inflation to see them going faster on rate cuts.

WHAT THE US PPI MEASURES?

The Producer Price Index (PPI) is an economic indicator that measures the average change over time in the selling prices received by domestic producers for their output. In simpler terms, it tracks inflation from the perspective of the seller/business rather than the consumer like the Consumer Price Index (CPI).