US Producer Prices Rise in November; Services Inflation Slows

By an economic analyst

In November, U.S. producer prices experienced their largest increase in five months, primarily driven by a significant rise in egg prices due to an ongoing avian flu outbreak. Although this spike in food prices contributed to an unexpected surge in producer inflation, there are signs that inflation in service sectors, such as portfolio management fees and airline fares, is easing. This is encouraging news amid concerns about inflationary pressures.

The Labor Department reported that the producer price index (PPI) for final demand rose by 0.4%, marking the highest increase since June and following a revised 0.3% increase in October. Economists had anticipated a smaller rise of 0.2%, which highlights the larger-than-expected nature of November's figures.

Over the past year, the PPI climbed by 3.0%, the fastest increase seen since February 2023, compared to a 2.6% rise in October. This increase coincides with recent data indicating a significant rise in consumer prices during the same period, reflecting ongoing inflationary trends in the economy.

The rise in wholesale goods prices was notable, soaring by 0.7% and contributing nearly 60% to the monthly increase in the PPI. Food prices saw a steep increase of 3.1%, primarily driven by a whopping 54.6% jump in wholesale egg prices, which rebounded from a decline of 20.6% in October. Additionally, prices for fresh and dry vegetables, as well as fresh fruits, also increased, while energy prices experienced a modest rise of 0.2%.

In contrast, services prices showed moderation. They increased by 0.2% after a 0.3% increase in October. Specifically, portfolio management fees fell by 0.6% after a significant rise the previous month, and airline passenger fares decreased by 2.1%. Furthermore, hotel and motel room costs also dropped by 3.1%, contrasting with a rise observed in October. The stability in prices for outpatient care remained unchanged, although inpatient care costs rose slightly.

These shifts in prices are crucial as they contribute to the core PCE price index, which excludes food and energy. Following the latest PPI data, economists adjusted their estimates for core PCE inflation for November down to 0.11% from earlier projections of as high as 0.3%, offering a more favorable outlook for the Federal Reserve's inflation target of 2%.

Looking ahead, inflation could see new pressures next year, especially if the incoming administration decides to implement import tariffs and mass deportations. Nonetheless, some economists are optimistic about the potential for core PCE inflation to decline further in the coming year.

Meanwhile, a separate report highlighted an increase in initial state unemployment claims, suggesting a cooling labor market. This rise of 17,000 claims brings the total to 242,000 for the week ending December 7. While this jump may reflect seasonal volatility post-Thanksgiving, it does indicate a slowing labor market overall.

Despite an overall healthy labor market, signs of softness are evident, which the Federal Reserve aims to monitor closely. The unemployment rate edged up to 4.2%, and the continued claims — a measure of ongoing unemployment benefits — showed an increase. The duration of unemployment spells is reportedly the longest in nearly three years, particularly affecting states like Washington and Michigan.

Investors are eyeing the upcoming Federal Reserve meeting where expectations are leaning towards further interest rate cuts. The central bank has already signaled a significant easing of its monetary policy since September, aimed at supporting the economy amidst mixed inflation readings and job market indicators.

inflation, producer, prices