A report from the Bureau of Labor Statistics on Thursday revealed that wholesale prices increased more than anticipated in November, raising concerns about the pace of inflation reduction. The producer price index (PPI), which measures the prices received by producers for their goods at the final-demand stage, rose by 0.4% for the month, surpassing the Dow Jones consensus estimate of 0.2%. Annually, the PPI increased by 3%, marking the largest advance since February 2023.
Excluding food and energy, the core PPI rose by 0.2%, meeting expectations. After excluding trade services, the PPI increase was only 0.1%. The year-over-year increase of 3.5% was also the highest since February 2023.
In other economic news, the Labor Department reported that initial claims for unemployment insurance totaled 242,000 for the week ending December 7, significantly higher than the forecast of 220,000 and up by 17,000 from the previous period.
Regarding inflation, there was a mixed outlook. Prices for final-demand goods surged by 0.7% in the month, the largest increase since February of that year. A significant portion of this increase was attributed to a 3.1% rise in food prices, with chicken eggs seeing a notable 54.6% increase. Services costs rose by 0.2%, driven by a 0.8% increase in trade.
The release of the PPI report followed the announcement that the consumer price index (CPI) also rose in November to 2.7% on a 12-month basis and 0.3% month-over-month. Despite persistent inflation, the market anticipates the Federal Reserve to lower its key overnight borrowing rate next week.
Economists generally interpreted the data as relatively benign, with underlying indicators suggesting enough disinflation to eventually bring the Fed back to its 2% target. The Fed primarily uses the Commerce Department’s personal consumption expenditures price index (PCE) as its inflation gauge, with data from the CPI and PPI contributing to this measure.
Market reactions to the economic news included slightly negative stock market futures and mixed Treasury yields, with the likelihood of a rate cut next week standing at around 98%, according to the CME Group. The expectation for a rate cut despite persistent inflation is driven by growing concerns among Fed officials about the labor market, as recent reports indicate a slowdown in job gains and a potential increase in layoffs.
