US wholesale inflation has dramatically reduced food prices.

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(Bloomberg) — U.S. headline inflation slowed unexpectedly in December, helped by lower prices for basic services that could help fuel food costs and inflationary pressures.

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The Bureau of Labor Statistics report released on Tuesday showed that the producer price index for final demand rose 0.2% from a month earlier. The median forecast in a Bloomberg survey of economists called for a 0.4% gain. Excluding food and labor, the gauge has not changed since November.

Compared to a year ago, the headline PPI rose 3.3 percent and the core measure rose 3.5 percent, the highest since February 2023.

The PPI report comes ahead of the more widely seen consumer price index, Wednesday from the BLS. In recent weeks, investors and consumers have shown signs of inflation on the back of strong demand and the incoming Trump administration’s threat of higher tariffs on imports.

Treasury yields were mixed and S&P 500 index futures were higher, while the dollar fell after the number.

Economists pay attention to the PPI report because many of its components are fed into the Federal Reserve’s preferred measure of inflation—the price index of personal consumption expenditures.

Those categories were mixed in December, including no change in hospital care and modest gains in physician services and portfolio management. Air tickets, however, jumped significantly from March 2022.

In the year Strong inflation in the final months of 2024, along with a resilient labor market, has encouraged federal policymakers to scale back expectations of interest-rate cuts this year.

Food prices

The PPI report showed a 0.1% drop in food prices, including a nearly 15% slide in vegetable prices. Egg prices rose nearly 56 percent in November due to the bird flu outbreak, up slightly from last month. Energy prices rose 3.5 percent.

General merchandise prices rose 0.6% after rising 0.7% a month ago. Commodity prices were unchanged except for food and energy.

Commodity prices are generally rising. Crude oil futures rose to a five-month high on Monday, while corn futures hit a seven-month high. Those developments led to strong gains in cocoa and coffee late last year.

Meanwhile, the PPI report showed that services prices were unchanged, one of the best readings for 2024 and reflecting a decline in margins.

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