US producer prices post biggest drop in more than 3 years

The Labor Department said its producer price index for final demand declined 0.3%, the biggest drop since October 2011, after falling 0.2% in November

US producer prices in December recorded their biggest fall in more than three years on tumbling energy costs while underlying inflation pressures were muted, a cautionary note for the Federal Reserve as it ponders its next step on monetary policy.

Other data on Thursday showed the number of Americans filing claims for unemployment benefits increased to a four-month high last week. That, however, probably does not alter the improving jobs market landscape as the data is difficult to adjust for seasonal variations around this time of the year.

The Labor Department said its producer price index for final demand declined 0.3 per cent, the biggest drop since October 2011, after falling 0.2 per cent in November.

In the 12 months through December, producer prices increased 1.1 per cent, the smallest gain since November 2013, after rising 1.4 percent in November.

Economists had forecast the PPI dropping 0.4 per cent in December and increasing 1.0 per cent from a year ago.

A broader measure of underlying producer inflation pressure that excludes food, energy and trade services edged up 0.1 per cent after being flat in November. It was up 1.3 per cent in the 12 months through December.

In a second report, the Labor Department said initial claims for state unemployment benefits rose by 19,000 to a seasonally adjusted 316,000 for the week ended January 10.

Economists had forecast claims falling to 291,000 last week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose by only 6,750 to 298,000 last week.

It has remained below 300,000, which is associated with a firming labor market, for 18 weeks.