S&P 500, Nasdaq reverse early gains after PPI inflation data

Wholesale prices rose less than expected in December, calming some fears that a US inflation resurgence is on the horizon.

“Better-than-expected PPI in December are going to be positive for the markets, which have been concerned with higher inflation readings during the last several months,” Eugenio Aleman, chief economist at Raymond James wrote in reaction to the report.

When excluding volatile food and energy categories, the index showed no increase in producer prices last month — a sign of some relief ahead of Wednesday’s critical consumer inflation report.

“The weakness was broad-based across most components with the exception of energy, where we saw a noticeable increase in gasoline prices last month and some strength in airline pricing,” noted Charlie Ripley, senior investment strategist for Allianz Investment Management.

Energy prices increased by 3.5% on November levels, the largest monthly increase since February of 2024. Domestic and international airline prices, meanwhile, edged up by 7.2% month over month. Airlines feed directly into the Fed’s preferred core PCE inflation gauge, set for release later this month.

“We are expecting a wider range of outcomes following tomorrow’s release on the latest consumer price data,” Ripley said.

Consumer prices for December are expected to remain sticky, with core CPI expected to have risen 3.3% on an annual basis for the fifth straight month. Tariff uncertainty remains a key question for the rest of the year.

“The proposed increase in tariffs by the incoming administration is adding to inflation concerns,” said Seema Shah, chief global strategist at Principal Asset Management.

“Estimates range from a one-off 0.5% to 1.5% increase in inflation from increased tariffs alone. Of course, central banks typically look through one-off increases from tariffs — unless it leads to a rise in inflation expectations. Notably, since the election, both market-based and survey-based measures of one- and two-year inflation expectations have risen slightly.”

Therefore, “the Fed cannot ignore the upside inflation risks facing the US economy,” in Shah’s view.

“Recent economic strength has combined with a rising threat of tariffs to increase upside inflation risks.”