The U.S. wholesale inflation rate eased but remained elevated, according to new statistics released by the U.S. Bureau of Labor Statistics (BLS) on Friday morning.
The Producer Price Index (PPI), a measure of inflation at the wholesale or producer level, eased for the fifth consecutive month to an annual rate of 7.4% in November of 2022 — but still high by historical standards.
The core PPI, which excludes food and energy, eased too. It came in at 6.2% in November, down from 6.7% in October.
Though eased, the November PPI numbers were above market forecasts. Thus, the adverse reaction in the debt and equity markets. At 9 a.m. Friday, major equity futures indexes were lower.
Meanwhile, U.S. Treasury bond yields edged higher. That’s another reversal from Thursday, when investors began chasing after stocks and bonds again.
The persistent gap between the overall PPI and the core PPI suggests that food and energy are still significant drivers of inflation at the wholesale level. However, this time, the problem is in the food rather than the energy component, as energy prices have declined.
“The November advance in prices for final demand goods was led by a 38.1-percent jump in the index for fresh and dry vegetables,” the BLS reported. “Prices for chicken eggs; meats; canned, cooked, smoked, or prepared poultry; and tobacco products also increased.
“Conversely, the gasoline index fell 6.0 percent. Prices for diesel fuel, residential natural gas, and primary basic organic chemicals also declined.”
Moreover, a new factor drove producer prices higher in November — a big jump in the price hikes of financial services.
“About one-third of the November rise in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which jumped 11.3 percent,” the BLS report said.
Price hikes in financial services are usually a one-time event. Thus, the moderation in the Wall Street sell-off after the release of November PPI numbers.
Inflation is a critical parameter setting the pace for Wall Street as investors factor future inflation into their decisions. When inflation numbers come out higher than expected, stock and bond prices head lower, as on Friday morning. By contrast, when inflation numbers come out lower than expected, stock and bond prices rise.
Moreover, inflation is a critical factor for the Federal Reserve when it decides to set the pace of monetary policy, something Wall Street pays close attention to these days. The FOMC is meeting next week, and the November CPI will play a critical role regarding the pace of interest rate hikes.
“The BLS PPI release this morning was a shocker for most economists and the Fed and raised the concern that the nation’s inflation is getting embedded in demand or inflation expectations,” said Ernie Goss, Economics Professor at Creighton University in an email to International Business Times.
“With monthly hourly wage growth expanding faster, the Fed’s number one concern is that a demand-led growth in inflation is now surfacing. This raises the concern that when the Fed’s interest rate setting committee meets on December 13-14, a 75-basis point boost is back on the table.”