US producer prices top estimates, support Fed price hikes in 2023

(Bloomberg) – The U.S. producer price index rose in November more than expected, boosted by services and underscoring the difficulty of inflationary pressures supporting the Federal Reserve to raise interest rates in the coming weeks. year 2023.

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The producer price index for final demand rose 0.3% for the third month and was up 7.4% from a year earlier, Labor Department data showed on Friday. Monthly increases for October and September have been revised higher.

At the same time, the annual increase was the smallest in 18 months, extending the months-long easing period and suggesting the central bank is still likely to pause rate hikes next year as expected. The cooling demand at home and abroad has eased the strain on the supply chain.

The data comes just days before the release of the closely watched consumer price index, which is forecast to show inflation, while too high, continues to decelerate.

The median estimates in a survey of economists by Bloomberg suggest the index will grow 0.2% in November and 7.2% from 2021.

Excluding volatile food and energy components, the so-called core PPI rose 0.4% in November and increased 6.2% on a year-over-year basis.

With core commodity inflation falling, attention is turning to price growth in the services sector of the economy. The housing component, currently the main driver of consumer inflation, is expected to change eventually, but wages could be the key to inflation’s ultimate path.

The S&P 500 opened lower while Treasury yields jumped and the dollar fluctuated.

Fed Chairman Jerome Powell said in a recent speech that core services like housing, as measured by an index tied to personal consumption, “may be the most important category to understand. the development of core inflation in the future.” And that “the labor market holds the key to understanding inflation in this category.”

Goods, Services

Friday’s report showed commodity prices up 0.1%, driven by higher food costs. Service prices recorded the strongest increase in three months, with an increase of 0.4%. The increase reflects higher costs for stockbroker consulting, wholesale of machinery and vehicles, and portfolio management.

Producer prices excluding food, energy and commercial services – which exclude the most volatile components of the index – rose 0.3% month-on-month and 4.9% from a year earlier. The annual increase was the smallest since April 2021.

The cost of goods processed for intermediate demand, which reflects prices earlier in the production process, fell for a fifth month, leading to a decline in energy commodities. More than a third of the decline was due to cheaper diesel fuel.

Separate data has also shown a sustained reduction in cost pressures. The Institute of Supply Management’s measure of prices that producers pay for raw materials fell last month to its lowest level since May 2020. And S&P Global’s composite gauge of input prices fell for the sixth consecutive month.

–With support from Jordan Yadoo.

(Updated with open market)

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