Wholesale inflation, as measured by the producer price index, ticked up slightly to 1% for the year ending in December as the Federal Reserve keeps interest rates high.
The new numbers were released on Friday by the Bureau of Economic Analysis. The December increase came after a 0.8% annual increase the month before. Most forecasters anticipated a slight uptick in wholesale inflation in December.
On a month-to-month basis, the wholesale price index fell by a tenth of a percentage point.
The new wholesale inflation numbers come a day after the more closely watched consumer price index report for December was released.
Inflation ticked up to 3.4% for the year ending in December, slightly more than was expected. On a month-to-month basis, inflation rose 0.3%, also more than expected. Much of the increase was attributable to rising shelter costs.
There has recently been a wave of optimism that the Fed will be able to pull off a “soft landing,” that is, a scenario in which inflation falls back to the Fed’s 2% rate while the broader economy avoids a recession.
Investors are also bullish on the notion that the Fed will begin trimming interest rates — and soon.
While the central bank’s monetary policy committee predicts three rate cuts this year, investors are betting that officials will go much further, penciling in some six rate cuts in 2024, according to the CME Group’s FedWatch tool.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Further, ahead of the latest wholesale inflation report, most investors were expecting the first interest rate cut to come at the Fed’s March meeting. Investors imply nearly 72% odds that the central bank will cut rates in March, according to the FedWatch tool.
Fed officials have been careful to keep all options open and, if it appears inflation is moving in the wrong direction, could hold rates higher for longer or even conduct another rate hike, something that would likely not bode well for markets.
