US December PPI Rises 2.9% YoY, Higher Than Expected; Service Sector Stickiness May Squeeze Fed 2026 Rate Cut Space

According to the latest data from the US Bureau of Labor Statistics, the US Producer Price Index (PPI) for December 2025 rose 2.9% year-on-year. Although slightly down from 3.0% in November, the month-on-month increase reached 0.5%, significantly higher than market expectations of 0.2% to 0.3%. This indicates that while overall inflation has retreated from its peak, the resistance in the "last mile" remains strong. Furthermore, it has hovered in the high range of 2.8%-3.0% for several consecutive months, not falling quickly to the 2% target as expected, causing investors' concerns about a resurgence of inflation to heat up.

A deeper breakdown of the details reveals a typical divergence pattern of "cold goods, hot services." In December, goods prices fell 0.3% month-on-month, mainly due to a 5.5% plunge in gasoline prices and a seasonal retreat in food and energy costs; however, service sector prices rebounded strongly by 0.5%, driven primarily by a 4.5% surge in margins for machinery and equipment wholesaling. Additionally, excluding food and energy, the core PPI year-on-year growth rate reached as high as 3.6%, indicating that corporate pricing power has not diminished and that core inflation pressure is more stubborn than the headline data suggests.

Market analysis points out that the stickiness of service sector prices mainly stems from wage rigidity and structural adjustments in supply chain margins. Equiti analysts warn that the better-than-expected PPI data implies that the inflation environment still possesses "non-traditional" characteristics, forcing the Federal Reserve to strike a balance between labor market stability and price pressure. Some views suggest that geopolitical risks (such as potential trade tariffs and energy supply chain fluctuations) also prompt manufacturers to maintain higher risk premiums, further pushing up core production costs.

Looking at the short term (1-2 months), benefiting from the high base effect and weak energy prices, the PPI year-on-year growth rate may consolidate within the 2.6%-2.9% range, but a sharp collapse is unlikely. In the medium to long term (3-6 months), if core service inflation cannot effectively cool down, expectations for rate cuts by the Federal Reserve in the first half of 2026 will face revision. Current interest rate futures markets (CME FedWatch) show that traders have reduced their expectations for rate cuts for the full year of 2026 to just two, and the timing of the first rate cut may be delayed. This poses potential headwinds for high-valuation tech stocks and the bond market.

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