Wholesale costs rose 0.3% in November, greater than anticipated, regardless of hopes of a slowdown in inflation
Wholesale prices rose more-than-expected in November as food prices surged, dampening hopes that inflation could be headed lower, the Labor Department reported on Friday.
The producer price index, a measure of what companies are getting for their products in the pipeline, rose 0.3% mom and 7.4% year-on-year, the slowest 12-month pace since May 2021. Economists polled by Dow Jones had been looking for a 0.2% gain.
Excluding food and energy, the core PPI rose 0.4%, also versus a 0.2% estimate. The core PPI rose 6.2% year over year, compared to 6.6% in October.
Shares fell after the report after earlier hinting at a positive open on Wall Street. Treasury yields moved higher.
Markets will now turn their attention to the more closely watched consumer price index, which is due to be released on Tuesday morning. A day later, the Federal Reserve will conclude a two-day meeting with an announcement on where interest rates are headed.
The hot inflation data keeps the Fed on track for another rate hike, likely a 0.5% hike that would push benchmark lending rates down to a target range of 4.25% to 4.5%. Policymakers have been spiking interest rates to quell stubborn inflation that has emerged over the past 18 months after being mostly dormant for more than a decade.
“The monthly rise in producer prices shows the need for further tightening, albeit at a slower pace,” said Jeffrey Roach, chief economist at LPL Financial. “The inflation pipeline is clearing and consumer prices will slowly move closer to the Fed’s long-term target.”
In other news on Friday, the University of Michigan consumer sentiment index came in higher-than-expected, reading 59.1 versus the Dow Jones estimate of 56.5 and below November’s 56.8. One-year inflation expectations also eased, falling to 4.6%, down 0.3 percentage point from a month ago.
Wholesale inventories also rose 0.5% in October, below the 0.8% estimate.
The market was most focused on the PPI report, although the consumer sentiment survey provided some optimism on the inflation front.
Services inflation accelerated by 0.4% over the month after rising just 0.1% in the previous month. A third of that gain came from the financial services industry, where prices rose 11.3%. This was somewhat offset by a sharp fall in passenger transport costs, which fell by 5.6%.
On the goods side, the index rose just 0.1%, a steep decline from its 0.6% gain in October. This modest gain came despite a 38.1% increase in fresh and dried vegetable prices. Prices rose in several food categories even as the gasoline index fell 6%.
Roach said the rising food price index is “probably an anomaly and does not necessarily reflect a trend reversal.”
The release comes amid other signs that price increases have at least slowed from a pace that had taken inflation to its highest level in more than 40 years. But Friday’s data, which tends to be a leading indicator of underlying price pressures, shows that shaking off inflation could be a long drudgery.
A year ago, the headline PPI was up 1% for the month and 10% on a 12-month basis.
“The fact that the PPI is up slightly month-on-month and just above expectations is another reminder of how stubborn inflation is and that it will take time to normalize,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Bureau. “Remember that compared to where we were a year ago, we are in a better place and heading in the right direction.”
This was the third month in a row that the overall PPI rose by 0.3%. On an annual basis, the increase represents a decline from the 11.7% peak in March, but is still well above the pre-pandemic pace, at least since 2010.
The increase occurred despite a 3.3% drop in final energy costs. This was offset by an identical 3.3% increase in the food index. The trade index rose 0.7%, while transportation and warehousing fell 0.9%.
Excluding food, energy and trade services, the PPI rose 0.3% mom and rose 4.9% on a yearly basis, the lowest since April 2021.
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