WASHINGTON (Reuters) - U.S. producer prices fell by the most in more than two years in December amid declines in the costs of energy products and trade services, adding to signs of tame inflation that could allow the Federal Reserve to be patient about raising interest rates this year.
The Labor Department said on Tuesday its producer price index for final demand dropped 0.2 percent last month after edging up 0.1 percent in November. That was the first decline since February 2017 and the largest decrease since August 2016.
In the 12 months through December, the PPI increased 2.5 percent, matching November's gain. Economists polled by Reuters had forecast the PPI would slip 0.1 percent in December and gain 2.5 percent on a year-on-year basis.
A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month. The so-called core PPI increased 0.3 percent in November. In the 12 months through December, the core PPI increased 2.8 percent following a similar rise in November.
Data last week showed the consumer price index falling 0.1 percent in December, the first drop in nine months, amid cheaper gasoline, airline fares, used trucks and motor vehicles as well as motor vehicle insurance. The CPI was unchanged in November.
Inflation remains tame despite a tightening labor market that is starting to push up wage growth, which backs up recent statements by Fed officials pledging patience in raising rates this year.
The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy is hovering just below the U.S. central bank's 2 percent target. The Fed has forecast two rate hikes this year, but several policymakers, including Chairman Jerome Powell, have said they would be cautious about tightening monetary policy.
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The core PCE price index increased 1.9 percent on a year-on-year basis in November after rising 1.8 percent in October. It hit 2 percent in March for the first time since April 2012.
Core PCE data for December is scheduled for release later this month, but it is likely to be delayed because of an ongoing partial shutdown of the federal government.
Last month, wholesale energy prices tumbled 5.4 percent after falling 5.0 percent in November. Gasoline prices decreased 13.1 percent after plunging 14.0 percent in the prior month.
That offset a 2.6 percent jump in wholesale food prices. Food prices increased 1.3 percent in November.
Overall, the cost of wholesale goods fell 0.4 percent in December after declining by the same margin in November. Core goods edged up 0.1 percent last month after rising 0.3 percent in November. A strong dollar and cheaper oil are likely keeping the cost of goods in check.
The cost of services fell 0.1 percent in December, pulled down by a 0.3 percent drop in the index for trade services, which measures changes in margins received by wholesalers and retailers. Services increased 0.3 percent in November.
The cost of healthcare services increased 0.2 percent last month. There were increases in prices for doctor visits, hospital outpatient, hospital inpatient and nursing home care. Healthcare prices gained 0.1 percent in November.
Those healthcare costs feed into the core PCE price index.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)