The U.S. Producer Price Index dropped handily in December, leaving the door open to further rate cuts to interest rates in the United States.

The PPI fell by 0.7% on the headline, and was down 0.1% on the core rate. “This third consecutive monthly decline in the overall figure brought year-over-year growth to -1.8%, the biggest annual drop in 15 years,” says BMO Nesbitt Burns, noting that inflation pressure in the U.S. continues to retreat rapidly.

Prices were uniformly weak across commodities, says BMO. Computer prices continued to tumble, plunging over 30% year-over-year. Passenger car prices also tumbled.

Pipeline pressures remain muted, it says, noting that in a release yesterday, import prices fell 0.9% in December. Producer prices for intermediate goods fell for the third month in a row and are down 4% for the year, while core intermediate prices have been dropping since June 2001. Crude prices fell in nine out of the 12 months in 2001 and are down over 30% from last December.

“Producer prices continue to point to a downward trend in inflation. Weak producer prices partially reflect a lack of corporate pricing power, which will weigh on the employment outlook as companies look to cut costs. The muted inflation backdrop leaves the door open to another 25 basis point cut by the FOMC,” it says.