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Workers load large containers of nectarines for sorting at Eastern ProPak Farmers Cooperative in Glassboro, N.J., in 2020.The Associated Press
U.S. producer prices increased by the most in five months in December amid some pass-through from import tariffs, suggesting inflation could pick up in the months ahead and allow the Federal Reserve to keep interest rates steady for a while.
The larger-than-expected rise in the Producer Price Index last month reported by the Labor Department on Friday was driven by a surge in services, mostly trade services, which measure changes in margins received by wholesalers and retailers. There were also strong increases in the prices of hotel and motel rooms as well as airline fares. But goods prices were unchanged.
The U.S. central bank on Wednesday left its benchmark overnight interest rate in the 3.50-per-cent to 3.75-per-cent range. Fed Chair Jerome Powell attributed the overshoot in inflation to tariffs, adding “but there’s an expectation that sometime in the middle quarters of the year we’ll see tariff inflation topping out.”
“This report validates the pivot of the Fed away from labour market risks back toward price stability,” said Carl Weinberg, chief economist at High Frequency Economics.
Canada’s GDP growth unexpectedly stalled in November, seen shrinking in fourth quarter
The PPI for final demand jumped 0.5 per cent last month, the biggest rise since July, after an unrevised 0.2 per cent gain in November, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI climbing 0.2 per cent.
In the 12 months through December, the PPI increased 3.0 per cent after rising by the same margin in November. The PPI advanced 3.0 per cent in 2025 after rising 3.5 per cent in 2024. The BLS is now caught up on the PPI and Consumer Price Index releases that were delayed by the 43-day shutdown of the federal government. U.S. Senate Republicans and Democrats were on Friday racing to avoid another shutdown at midnight, which would delay data releases from the BLS, including January’s employment report due next Friday.
A 0.7-per-cent increase in services accounted for the rise in the PPI last month. They were driven by a 1.7-per-cent jump in margins for final demand trade services, which made up two-thirds of the increase in services. Businesses have been absorbing some of President Donald Trump’s sweeping import tariffs, preventing a sharp increase in inflation.
Tariff pass-through remains uneven
“Tariff impacts continued to flow through producer costs unevenly in December,” said Ben Ayers, senior economist at Nationwide. “At a broad level, costs associated with tariffs remain muted … but localized effects can be pronounced. Trade services… spiked in December, likely from producers looking to recoup some of the losses caused by higher production costs over 2025.”
The cost of services less trade, transportation and warehousing increased 0.3 per cent, while prices for transportation and warehousing services rose 0.5 per cent.
Portfolio management fees increased 2.0 per cent after gaining 1.4 per cent. Airline fares soared 2.9 per cent while wholesale prices of hotel and motel rooms surged 7.3 per cent. These categories are among the components that go into the calculation of the Personal Consumption Expenditures price indexes, the inflation measures tracked by the Fed for its 2-per-cent target.
Economists’ estimates for December core PCE inflation ranged from an increase of 0.3 per cent to 0.4 per cent, which would translate into a year-on-year rise of 3.0 per cent. The PCE inflation data for December is due to be released on Feb. 20. The core PCE price index has risen by 0.2 per cent for five straight months. Core PCE inflation increased 2.8 per cent year-on-year in November.
The PPI inflation data was overshadowed by Trump’s nomination of Kevin Warsh to replace Powell when his term at the helm of the central bank ends in May. Warsh is a former Fed governor and frequent critic of the central bank.
U.S. stocks opened lower. The dollar was trading higher against a basket of currencies. U.S. Treasury yields rose.
Producer goods prices were unchanged in December after increasing 0.8 per cent in November. Energy prices dropped 1.4 per cent after rebounding 3.7 per cent in November. They were held down by lower gasoline prices. Food prices fell 0.3 per cent amid a 20.4 per cent plunge in the cost of fresh and dry vegetables, which likely reflected the rolling back of some tariffs by the Trump administration to lower costs for consumers. Food prices were unchanged in the prior month.
Excluding food and energy, producer goods prices advanced 0.4 per cent after rising 0.2 per cent in November.
