Producer prices fell in December as companies paid less for gasoline and vegetables, although higher prices for light motor trucks pushed a measure of underlying inflation higher.
JEREMY LAWSON, SENIOR ECONOMIST, BNP PARIBAS, NEW YORK
A contribution to the rise in the PPI core came from tobacco and passenger vehicle prices. Our feeling is that the core side of the thing benefited from an earlier fall in commodity prices and that process has come to an end. You could go into 2012 with a slightly more solid footing in commodity prices. But we are looking for moderate price developments.
But all the price increase in the core won't be passed on to the consumers. This is not a good environment to pass on all the cost increases to consumers especially in the retail sector. We maintain our moderate view on inflation.
In those categories , margins could come under some pressure into the first part of the year. As a rule, a margin squeeze is not good for hiring intention.
PETER JANKOVSKIS, CO-CHIEF INVESTMENT OFFICER, OAKBROOK INVESTMENTS LLC IN LISLE, ILLINOIS
It was interesting that the ex-food and energy surprised on the upside. That is somewhat consistent with the Empire Manufacturing report that was out yesterday. it showed an increase in prices paid by manufacturers. That may be a healthy sign that we are finally seeing some movement in the economy ... I don't think there is any need to be concerned about inflation at the moment.
JACOB OUBINA, SENIOR US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
The real surprise here was that the core was up, it was firmer than expected but that was driven by a couple of outliers, including prescription drugs.
Overall the report is still relatively benign in terms of inflation.
I think we should be braced for a pretty soft CPI tomorrow. Even if we get negative prints on the core and the headline CPI tomorrow it's going to be attributed to the fact that holiday discounts were deeper than normal.
Recently we've seen oil prices go up again.
The disinflationary tone of the December reports both on PPI and on CPI will be fleeting.
VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS
Lower food and energy prices pulled producer prices down in December, as the PPI inched down 0.1%, while core prices rose 0.3%. The market expected PPI to rise for the second month (only by a smaller 0.1%) after November's 0.3% increase that was driven by foods. Even with December's food and energy influence, core prices accelerated from November's 0.1% rise and, in fact, have never fallen in 2011 (two flat readings in September and October). Headline PPI on the other hand, fell on three separate occasions over the year on energy fluctuations.
(Americas Economics and Markets Desk)