US producer prices jump more than expected in December as services costs surge

• Services prices jumped 0.7%, with wholesaler and retailer trade margins climbing 1.7% and accounting for two-thirds of the services increase, largely due to machinery and equipment wholesaling costs.
• Goods prices were flat overall as gains in nonferrous metals, motor vehicles, and aircraft offset declines in diesel fuel, gasoline, and beef prices, reflecting uneven inflationary pressures across sectors.
• The data suggests tariff impacts are increasingly being passed through to prices, with Fed Chair Powell noting that tariff-driven inflation could peak later in 2026 before easing.

Summary: US Producer Prices Surge Beyond Expectations in December

Key Data Points:

• The Producer Price Index (PPI) for final demand rose 0.5% month-over-month in December, accelerating from 0.2% in November and exceeding economist forecasts
• Annual producer prices increased 3%, unchanged from the previous month
• Services prices jumped 0.7%, driving the overall increase
• Trade service margins for wholesalers and retailers climbed 1.7%, accounting for two-thirds of the services price rise
• Machinery and equipment wholesaling margins surged, representing over 40% of the services increase

Sector Breakdown:

Goods prices remained flat in December after November gains. Nonferrous metals, residential natural gas, motor vehicles, soft drinks, and aircraft posted increases, while diesel fuel, gasoline, jet fuel, beef, and steel scrap declined.

Market Implications:

The data suggests businesses are increasingly passing tariff-related costs to consumers after initially absorbing them. This raises concerns about broader inflationary pressures ahead. The Federal Reserve recently held interest rates steady, with Chair Jerome Powell indicating tariff-driven inflation could peak later this year before easing.

PPI components feed into the Personal Consumption Expenditures (PCE) index—the Fed's preferred inflation gauge—making this data critical for monetary policy decisions. December PCE figures are expected later this month.

Additional Context:

Recent government shutdown delays have created data backlogs, with potential future disruptions threatening upcoming employment reports. Investors and policymakers are preparing for heightened inflation volatility as tariff effects become more pronounced in producer pricing.