U.S. producer prices fall in December on declining energy costs

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[January 15, 2016]  WASHINGTON (Reuters) - U.S. producer prices fell in December as energy prices dropped sharply, a trend that could temper expectations that inflation will rise this year toward the Federal Reserve's target.

The Labor Department said on Friday its producer price index slipped 0.2 percent after increasing 0.3 percent in November.

In the 12 months through December, the PPI declined 1.0 percent after falling 1.1 percent in November. December marked the 11th straight 12-month decrease in the index.

Producer prices fell 1.0 percent in 2015, the weakest since the series started in 2010, after rising 0.9 percent in 2014. Economists had forecast the PPI falling 0.2 percent last month and declining 1.0 percent from a year ago.

Coming on the heels of a report on Thursday showing a steep drop in import prices in December, weak producer prices suggest that an anticipated rise in inflation will probably be insufficient to breach the Fed's 2 percent target.

Inflation, which has been tamed by a strong dollar, tepid wage growth and cheaper oil, is expected to rise this year as 2015's weak figures fall out of the calculation. However, persistently low readings could limit the boost from the favorable so-called base effects.

The inflation outlook will likely determine the timing of further interest rate increases after the Fed last month raised its key overnight lending rate by 25 basis points to between 0.25 and 0.50 percent, the first rate hike in nearly a decade.

Last month, the cost of services edged up 0.1 percent after November's 0.5 percent increase. Energy prices fell 3.4 percent after dropping 0.6 percent in November. Wholesale food prices fell 1.3 percent after gaining 0.3 percent the prior month.

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Goods prices fell 0.7 percent, declining for a sixth straight month.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent

last month after edging up 0.1 percent in November.

The so-called core PPI was up 0.3 percent in the 12 months through December.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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