US Wholesale Inflation Accelerated in November in Sign That Some Pressures Remain
Wholesale costs in the United States increased significantly last month, indicating that price pressures are still present in the economy despite a decline in inflation from its peak levels recorded more than two years prior.
The Labor Department reported that its producer price index, which measures inflation before it impacts consumers, rose by 0.4% in November compared to October. This change is an increase from the 0.3% rise observed in October. Year-over-year, wholesale prices jumped by 3% in November, marking the steepest annual increase since February 2023.
When excluding volatile food and energy prices, known as core producer prices, there was a 0.2% increase from October and a 3.4% gain from November of the previous year. The rise in wholesale inflation for November was primarily driven by higher food prices, particularly the surging costs of fruits, vegetables, and eggs, which led to an overall increase in wholesale food costs by 3.1% from October after remaining static the previous month.
The wholesale price report follows a recent government announcement indicating that consumer prices rose by 2.7% in November compared to a year before, a slight uptick from the annual increase of 2.6% recorded in October. This rise was largely driven by pricier used cars, hotel accommodations, and groceries, suggesting that heightened inflation has not yet been wholly contained.
Even though inflation in consumer prices has significantly decreased from a four-decade high of 9.1% in June 2022, the current levels have remained persistently above the Federal Reserve’s target of 2%.
Despite the moderate rise in inflation noted last month, the Federal Reserve is expected to lower its benchmark interest rate next week for the third consecutive time. Following 11 increases to its key short-term rate in 2022 and 2023, which brought rates to a two-decade high as part of a strategy to address inflation stemming from a robust economic recovery post-COVID-19 pandemic, the central bank had begun to reverse this trend as inflation cooled.
In September, the Fed lowered its benchmark rate significantly by half a point, followed by a quarter-point cut in November. These adjustments have brought the key rate to 4.6%, down from the previous 5.3% high.
The producer price index serves as an early indicator of potential future trends in consumer inflation, and its components, such as those related to healthcare and financial services, are closely monitored since they contribute to the Fed’s preferred inflation measure, the personal consumption expenditures (PCE) index.
Despite the overall increase in producer prices, some economists, like Paul Ashworth of Capital Economics, commented that the subcomponents feeding into the PCE index were notably weak in November, which adds to the likelihood that the Fed will opt for another rate cut in the upcoming meeting.
Concerns have surfaced regarding the potential influence of political dynamics on inflation pathways and the Fed’s continuation of rate cuts in light of forthcoming agenda announcements. While there are commitments to lower prices through actions such as boosting oil and gas drilling, other proposed measures may create inflationary pressures, like imposing significant taxes on imports and deporting undocumented workers.
Nevertheless, market analysts anticipate a high probability of a third rate cut from the Fed next week, with estimates indicating a 98% likelihood based on trader movements.
