The Wholesale Inflation Report is out for the month of November and it shows a small increase of 0.3%. This report indicates that the Fed is more confident in its ability to bring inflation down without hurting the economy in the process.
Prices rose 0.3% in November
Wholesale inflation increased by 0.3% in November, compared to the previous month. The Producer Price Index (PPI) shows the cost of goods before they reach consumers, which indicates the pace of price increases in the U.S. It also signals when the underlying trend in inflation is moderating.
Overall prices in the United States climbed for the third straight month, according to the latest data from the Bureau of Labor Statistics. But the core PCE price index likely rose only 0.2%, the same as in October. Despite this, the overall picture is slightly better than expected.
The University of Michigan’s consumer sentiment survey showed a 59.1 reading, which was much better than the Dow Jones’ estimate. That was the highest number since January, which was the first time the index has registered above a 50 mark.
The PPI is not the only economic measure to have slowed, though. The core producer price index, which excludes volatile energy and food costs, rose 6.2% over the past year.
Food, energy and trade services prices rose 5.4% on the year
A year-over-year surge of 5.4% is the largest gain in over 13 years. Prices increased largely due to the jump in gasoline prices. This jump in inflation is not necessarily a cause for concern, but it does call into question the Federal Reserve’s approach to fighting inflation.
Wholesale prices rose 0.3% in November, marking the third straight month of increase. The core PPI, which excludes food and energy, increased 0.5 percent. It is still below Econoday’s consensus reading of 0.7 percent.
Consumer prices rose 0.4 percent in October, after a 0.3 percent increase in September. They were up 3.3% in food costs and 5.4% in energy costs.
The Core Producer Price Index, which excludes energy and trade services, rose 0.3%. That is still well below the 4.9% increase in the previous year.
Final demand for goods increased 0.7% in the 12-month period, driven by a 2.3% increase in transportation and warehousing, a 0.1 percent increase in trade services, and a 0.6% rise in goods. The price for dealing contributed to a third of the increase.
Investors are more confident the Fed can bring inflation down without bringing the economy down with it
The Federal Reserve’s recent rate hike has been met with cautious optimism by investors. However, inflation is still high and the economy isn’t quite on track.
There are many signs that suggest inflation is likely to slow down. One is the recent deceleration of PCE inflation. Another is the easing of supply chain disruptions. This should lead to a more robust growth picture.
Aside from the usual suspects (housing, energy, food), there are several other categories that are improving. These include apparel, information technology commodities, and airlines.
On the flipside, there are a number of categories that are still growing at a rapid pace. Average hourly earnings continue to rise. Also, the unemployment rate has fallen recently. But there are concerns that wage growth is stubborn.
For the Fed, the real challenge is convincing investors that inflation has finally peaked. Bringing inflation down is going to be a hard slog. It’s not a good idea to overdo it.
Stocks open higher after the report
Stocks open higher after the wholesale inflation report came in at 7.4%, compared to the 8.1% expected. This is a sharply lower figure than the October rate of 8.1%. Traders were hoping that this data would indicate an easing of price pressures.
Investors were not too concerned, however. The consumer price index, which measures inflation at the household level, showed a monthly increase of 0.1%. That is the lowest reading in over a year. However, it is slower than the 7.7% reported last month.
While the headline figure sank to the low end of economists’ expectations, the CPI’s core inflation figure was much lower. The core figure is the portion of the CPI that excludes energy and food. It was expected to decline to 8.8% from 9.9% in July.
In addition, the producer price index was also lower than economists’ expectations. It rose only 0.1% in August, compared to the 0.2% expected.
These lower numbers were enough to raise questions about the possibility of a Fed hike in the near future. As a result, investors began to adjust their asset allocations to reflect the changing policy landscape.