US Wholesale Inflation Accelerated in November
Wholesale costs in the United States increased significantly last month, indicating that price pressures remain evident in the economy, even as inflation has decreased from the peak levels experienced over two years ago.
The Labor Department reported that its producer price index, which tracks inflation before it reaches consumers, rose by 0.4% in November compared to October, up from a 0.3% increase the previous month. Year-over-year, wholesale prices climbed by 3% in November, marking the steepest annual rise since February 2023.
When excluding volatile food and energy prices, core producer prices rose by 0.2% from October and by 3.4% compared to November 2023. The surge in food prices contributed to the November wholesale inflation reading, which was higher than economists anticipated. Notably, prices for fruits, vegetables, and eggs saw a significant increase, driving wholesale food costs up by 3.1% from October, having remained unchanged the month prior.
The wholesale price data came just a day after the government announced that consumer prices increased by 2.7% in November compared to the same month the previous year, up from a 2.6% annual gain in October. This increase was primarily driven by the rising costs of used cars, hotel rooms, and groceries, indicating that inflation is still not fully under control.
Consumer price inflation has declined from a four-decade high of 9.1% in June 2022, yet it has remained persistently above the Federal Reserve’s target rate of 2%. Despite the slight upticks in inflation figures last month, the Federal Reserve is expected to lower its benchmark interest rate next week for the third consecutive time, reflecting the ongoing adjustments to combat inflation.
In 2022 and 2023, the Federal Reserve raised its key short-term interest rate 11 times, bringing it to a two-decade high as part of efforts to reverse the inflationary trend following the economy’s rapid recovery from the COVID-19 recession. The recent cooling of inflation prompted the central bank to begin reversing its rate hikes starting this fall.
In September, the Fed reduced its benchmark rate by a substantial half-point, followed by a quarter-point cut in November. These measures have decreased the key rate to 4.6%, down from a high of 5.3%, which had not been seen in four decades.
The producer price index serves as an early indicator of potential future movements in consumer inflation. Economists monitor it closely, especially since certain components, particularly in healthcare and financial services, contribute to the Fed’s preferred inflation measure known as the personal consumption expenditures (PCE) index.
Despite the overall increase in producer prices, analysts pointed out that the components influencing the PCE index were “universally weak” in November. This trend further suggests an increasing likelihood that the Federal Reserve will implement additional rate cuts in the near future.
The evolving economic landscape, including the anticipated agenda of incoming political leadership, has raised questions about the future trajectory of inflation and whether the Fed will continue its strategy of cutting rates. While promises to lower prices through enhanced oil and gas production have been made, other campaign pledges may create inflationary pressures.
Nevertheless, market observers expect a 98% probability of a third rate cut by the Federal Reserve next week, as indicated by recent analyses.
