In November, wholesale prices showed a larger-than-anticipated increase, raising questions about whether efforts to curb inflation might be slowing down, as per a report from the Bureau of Labor Statistics on Thursday.
The Producer Price Index (PPI), which tracks prices at the final demand stage for producers, marked a 0.4% rise for the month. This figure surpassed the Dow Jones consensus forecast of 0.2%. On a yearly scale, the PPI climbed to 3%, marking its most significant rise since February 2023.
When excluding volatile categories like food and energy, the core PPI edged up 0.2%, aligning with expectations. Additionally, when trade services were left out, the PPI increment stood at a mere 0.1%. The year-over-year increase of 3.5% marked the highest since February 2023 as well.
In other economic developments on Thursday, the Labor Department revealed that new unemployment insurance claims totaled a seasonally adjusted 242,000 for the week ending on December 7th. This was much higher than the predicted 220,000, showing an uptick of 17,000 from the previous week’s figures.
Inflation data conveyed a mixed picture.
Prices for final-demand goods surged 0.7% within the month, representing the most significant rise since February this year. Approximately 80% of this increase was due to a notable 3.1% jump in food prices, based on BLS data.
Within the food sector, chicken eggs skyrocketed by 54.6%, joined by rising prices across various items like dry vegetables, fresh fruits, and poultry. At retail, egg prices leaped 8.2% for the month and were up a staggering 37.5% from the previous year, according to Wednesday’s consumer price report from the BLS.
Service costs also ticked up 0.2%, driven upward by a 0.8% increase in trade-related expenses.
This PPI announcement followed by a day the Bureau’s consumer price index (CPI) report, a more recognized inflation measure, which indicated a rise to 2.7% over a 12-month span and a 0.3% increase month-to-month in November.
Despite inflation showing some persistence, there’s a strong market sentiment that the Federal Reserve will reduce its key overnight borrowing rate next week. Futures market participants are betting heavily on a quarter-percentage-point cut at the Federal Open Market Committee meeting wrapping up on Wednesday.
Economists largely interpreted this week’s data as largely harmless, viewing underlying signals as still suggesting sufficient disinflation to eventually steer the Fed back to its 2% inflation goal.
The Federal Reserve primarily relies on the Commerce Department’s personal consumption expenditures price index (PCE) for tracking inflation and making forecasts. Nevertheless, figures from both the CPI and PPI play into this measure.
An Atlanta Fed tracker predicts November’s PCE will reach 2.6%, up 0.3 percentage points from October, with core PCE at 3%, rising by 0.2 percentage points. The Fed tends to view the core number as a more reliable long-term indicator. Some economists noted that the specifics in the report suggest a smaller monthly increase in PCE inflation than previously expected.
“It seems like only an unforeseen event, like a significant change in tariff policy, might disrupt the supply-side contributions aiding in meeting the Federal Reserve’s 2% average target in the near-term,” commented Kurt Rankin, a senior economist at PNC.
Stock market futures showed slight declines in reaction to the economic updates, while Treasury yields presented mixed results. The chance of a rate cut next week held steady at about 98%, according to CME Group data.
A key reason why markets are expecting a Fed rate cut, even amid persistent inflation, is the growing worry among Fed officials about the labor market. Nonfarm payrolls have seen monthly increases since December 2020, but the pace of these gains has recently slowed, and the latest news suggests a potential rise in layoffs and prolonged unemployment durations.
The latest jobless claims reached their highest point since early October, with continuing claims rising to 1.89 million. The four-week moving average for continuing claims, which helps smooth out weekly fluctuations, climbed to its highest in over four years.
