Wholesale prices rose more than expected in November as food prices jumped, dampening hopes inflation could ease, the Labor Department reported Friday.
The producer price index, a measure of what companies get for their products in the pipeline, rose 0.3% for the month and 7.4% from a year ago, this which was 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 against an estimate of 0.2%. The core PPI rose 6.2% from a year ago, compared to 6.6% in October.
Shares fell on the report after previously indicating a positive open on Wall Street. Treasury yields rose.
Markets will now turn their attention to the most watched consumer price index, which is due out Tuesday morning. A day later, the Federal Reserve will wrap up a two-day meeting with an announcement on where interest rates will go.
Strong inflation data keeps the Fed on track for another rate hike, likely a 0.5% hike that would push benchmark borrowing rates toward a target range of 4.25% to 4, 5%. Policymakers pushed rates higher in an effort 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 illustrates the need for continued tightening, albeit at a slower pace,” said Jeffrey Roach, chief economist at LPL Financial. “The inflation pipeline is clearing and consumer prices will slowly approach the Fed’s long-term target.”
In other economic news on Friday, the University of Michigan Consumer Sentiment Index came in higher than expected, registering a reading of 59.1 against the Dow Jones estimate for 56.5 and below. 56.8 from November. One-year inflation expectations also declined, falling to 4.6%, 0.3 percentage point lower than a month ago.
In addition, wholesale inventories rose 0.5% in October, below the estimate of 0.8%.
The market focused more on the PPI report, although the consumer sentiment survey provided some optimism on the inflation front.
Services inflation accelerated during the month, rising 0.4% after rising just 0.1% the previous month. A third of that gain came from the financial services sector, where prices jumped 11.3%. This was somewhat offset by a sharp decline in passenger transportation costs, which fell 5.6%.
On the goods side, the index only rose 0.1%, a sharp drop from its 0.6% gain in October. This modest gain occurred despite a 38.1% acceleration in the prices of fresh and dried vegetables. Prices rose in several food categories even as the gasoline index fell 6%.
Roach said the spike in the food price index is “probably an anomaly and does not necessarily reflect a change in trend.”
The release comes amid other signs that price rises were at least slowing from a pace that had put inflation at its highest level in more than 40 years. However, Friday’s data, which tends to be a leading indicator of underlying price pressures, shows that shaking off inflation could be a long job.
A year ago, the overall PPI rose 1% for the month and 10% year-over-year.
“The month-over-month PPI is up slightly and slightly above expectations is another reminder of how sticky inflation is and that it will take time before we see it normalize,” Mike said. Loewengart, head of model portfolio construction for Morgan Stanley’s Global. Investment office. “Keep in mind that compared to where we were a year ago, we are in a better place and we are moving in the right direction.”
It was the third month in a row that the overall PPI rose 0.3%. On a yearly basis, the increase represents a decline from the 11.7% peak reached in March, but remains well ahead of pre-pandemic rates, at least since 2010.
This increase occurred despite a 3.3% decline in final demand energy costs. This was offset by an identical 3.3% increase in the food index. The trade index rose 0.7%, while the transportation and warehousing index fell 0.9%.
Excluding food, energy and commercial services, the PPI rose 0.3% from a month ago and rose 4.9% on an annual basis, the lowest since April 2021.