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The Labor Department said on Thursday its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.
In the 12 months through December, the PPI rose 2.6 percent after accelerating 3.1 percent in November. Economists polled by Reuters had forecast the PPI rising 0.2 percent last month and increasing 3.0 percent from a year ago.
The PPI increased 2.6 percent in 2017 after advancing 1.7 percent in 2016. A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 percent last month.
It gained 2.3 percent in 2017 after rising 1.8 percent in 2016.
Coming on the heels of a report on Wednesday showing a sharp moderation in import prices in December, the weak PPI report might temper expectations that inflation will accelerate this year even though its correlation with consumer prices has weakened.
Economists are hoping that a tightening labor market and recent weakness in the dollar will lift inflation towards the Federal Reserve's 2 percent target this year.
The U. S. central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012. The greenback lost 7 percent of its value against the currencies of the United States' main trading partners last year.
The Fed raised interest rates three times in 2017. Although the central bank has forecast three rate hikes for this year, it will depend on the inflation outlook. There are concerns among some Fed officials that the factors that held down inflation early last year could become more persistent.
Last month, the price of services fell 0.2 percent after rising for nine straight months. That reflected a 10.7 percent drop in margin for automotive fuels and lubricants retailing.
The cost of healthcare services increased 0.2 percent last month after being unchanged in November. Those costs feed into the core PCE price index.
(Reporting by Lucia Mutikani; Editing by Paul Simao)