US producer prices dropped by the most in more than two years in December as the cost of energy products and trade services fell, adding to signs of tame inflation that may allow the Federal Reserve to be patient about raising interest rates this year.
Other data on Tuesday suggested manufacturing activity slowed further at the start of the year, with a measure of business confidence in New York State tumbling to more than a 1-1/2-year low in January.
Fed Chairman Jerome Powell said last week that low inflation afforded policymakers "the ability to be patient and watch patiently and carefully" while they monitored economic data and financial markets for risks to growth. The US central bank has forecast two rate increases for 2019.
The Labour Department said its producer price index for final demand dropped 0.2 percent last month after edging up 0.1 percent in November. That was the first decline since February 2017 and largest decrease since August 2016.
In the 12 months through December, the PPI increased 2.5 percent, matching November's gain. Economists polled by Reuters had forecast the PPI would slip 0.1 percent in December and gain 2.5 percent on a year-on-year basis.
Wholesale energy prices tumbled 5.4 percent in December, with gasoline falling 13.1 percent after plunging 14.0 percent in the prior month. That offset a 2.6 percent jump in wholesale food prices. Food prices increased 1.3 percent in November.
The cost of services fell 0.1 percent, pulled down by a 0.3 percent drop in the index for trade services, which measures changes in margins received by wholesalers and retailers. Services increased 0.3 percent in November. A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month. The so-called core PPI increased 0.3 percent in November. In the 12 months through December, the core PPI increased 2.8 percent following a similar rise in November.
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