$$\cos B\cot\frac B2=\left(1-2\sin^2\frac B2\right)\cot\frac B2=\cot\frac B2-\sin A$$
Clearly using Law of Sines, $\sin A,\sin B,\sin C$ are in AP
So, it is sufficient to show that $\displaystyle\cot\frac A2,\cot\frac B2,\cot\frac C2$ are also in AP
We have $$a+c=2b\iff \sin A+\sin C=2\sin B$$
Now using Prosthaphaeresis Formula, $$2\sin\frac{A+C}2\cos\frac{A-C}2=2(2\sin\frac B2\cos\frac B2)$$
$$\iff\cos\frac{A-C}2=2\sin\frac B2\ \ \ \ (1)$$
Again, $\displaystyle\cot\frac A2+\cot\frac C2=2\cot\frac B2$
$$\iff\frac{\sin\frac{A+C}2}{\cos\frac A2\cos\frac C2}=2\frac{\cos\frac B2}{\sin\frac B2}$$
$$\iff\sin\frac B2=2\cos\frac A2\cos\frac C2=\cos\frac{A-C}2-\cos\frac{A+C}2$$
$$\iff\sin\frac B2=\cos\frac{A-C}2-\sin\frac B2$$ which is same as $(1)$