The latest inflation report is out, and the early chatter is already doing what it always does: seize on a single monthly number and ignore the trend.
Here’s the truth, stripped of spin.
Yes, producer prices rose 0.5 percent in December, a stronger-than-expected monthly increase. But on a year-over-year basis, producer inflation is running at about 3.0 percent, well below where it stood a year ago and clearly off the peak. Inflation is a rate-of-change problem, not a one-month snapshot. And the rate is cooling.
So what drove the December increase?
Trade services and portfolio management — two of the most volatile components in the entire inflation index. These categories move with financial markets, not grocery carts. When markets rise, portfolio fees rise. That mechanical relationship explains much of the monthly bump. It does not signal broad inflationary pressure in the real economy.
Now look where Americans actually feel inflation.
Goods prices overall were flat in December — essentially zero month over month. Within that flat reading, energy prices fell roughly 1.4 percent, while food prices declined about 0.3 percent. Those are not rounding errors. They matter.
Energy prices, in particular, are doing heavy lifting. Over the past year, producer energy prices are slightly negative, and over the last three months they have been falling at an annualized pace north of 4 percent. Gasoline prices are down close to 10 percent from a year ago, with diesel down even more. Those declines don’t just help drivers — they cascade through shipping, manufacturing, feed lots, and logistics.
Food prices tell a similar story. On a year-over-year basis, producer food inflation is running at roughly 1 percent, and over the last three months food prices have been falling at an annualized rate of more than 3 percent. Many staples are cheaper than a year ago: fruits, vegetables, grains, dairy — even eggs, which have seen dramatic declines. That’s real relief, even if it doesn’t make headlines.
Yes, some categories remain elevated—beef in particular. But the president is tackling that one head on—more imports, a crackdown on the beef processing cartel, expansion of grazing area.
One underreported point deserves emphasis: some price increases reflect strength, not stress — and they point directly to a manufacturing recovery that has been a central goal of the Trump administration. Core goods prices excluding food and energy rose about 0.4 percent, led by vehicles, aircraft, and other metal-intensive production. These are not paper gains. They reflect U.S. factories running hotter, order books filling, and domestic producers regaining pricing power after years of foreign dumping and offshoring. When American manufacturing comes back to life, prices firm at the factory gate. That’s not inflation pathology — that’s industrial muscle returning.
Here’s the key takeaway.
We are not seeing a broad-based inflation breakout. We are seeing a narrow, services-driven monthly uptick layered on top of a clear year-long cooling trend — with energy and food pulling inflation down, not pushing it up.
The danger now isn’t runaway inflation. The danger is misreading the data — tightening where patience is warranted, or ignoring the structural reforms that actually suppress prices over time: domestic production, energy abundance, competition, and enforcement against rigged markets.
Inflation doesn’t die overnight. But the numbers say it’s losing altitude — even if the turbulence makes it feel otherwise.
And that’s the signal worth hearing. It’s one that Fed Chairman Jerome Powell is deaf to.
