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Producer Price Index Tells Us THIS About The Economy

Although US producers prices rose a little more than expected in November on a jump in the cost of services, the trend is modest. Wholesale prices rose more than expected during the month, with a spike in food prices that dimmed hopes inflation might be heading down, the Labor Department reported on Friday.    

The producer price index (PPI) rose 0.3% in November, according to data from the Bureau of Labor Statistics. That’s equal to an upwardly revised 0.3 percent gain in October and higher than the markets 0.2 percent expectation. Prices for goods increased by 0.1 percent, and for services by 0.4 percent—their largest month-over-month increase since August.   

The PPI increased by 1.0 percent in July, with prices of services increasing by 1.1 percent and goods increasing by 0.6 percent. The U.S. producer price index rose 0.3 percent in November.

Prices for goods leaving factories rose an annualized 15.7%, compared with 14.7% in the prior month. The increases represent a downside risk for the core goods disinflationary trend that is apparent from the latest Consumer Price Index data. Goods prices showed continued signs of deceleration in the PPI reports, which is likely consistent with a decline in world demand and improved supply chains.    

Economists had expected core inflation, a measure of inflation capturing changes in the price of goods and services less food and energy, to display a year-over-year gain of 8.3%. The Producer Price Index, a gauge of what companies receive for the products in the pipeline, increased 0.3% in the month, up 7.4% year-over-year—its slowest pace for 12 months since May 2021.    

On an annualized basis, prices increased 7.4%, which is down by seven-tenths since October and the slowest annual pace of inflation since May 2021. Excluding food, energy, and business services, the PPI rose 0.3 percent compared with the previous month, and is 4.9 percent higher compared with the year before—its lowest level since April 2021. 

On a year-over-year basis, the headline PPI, which excludes food and energy (they have higher exposure to market variability in prices), measured 6.7%–down from the revised 7.1 percent year-over-year growth in September.    

Since PPI components feeding the core PCE price index are largely muted, economists believe that measure of inflation probably increased about 0.2 percent in November, which would reduce the annual rate of growth to around 4.7 percent. The inflation rate measures how fast prices for goods and services are rising. 

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