Wholesale prices rose 0.3% in November, more than expected, despite hopes that inflation is cooling

Wholesale prices rose 0.3% in November, more than expected, although inflation is expected to cool

The U.S. Labor Department reported on Friday that wholesale prices rose more than expected in November as food prices soared, dampening hopes that inflation may be moving lower.

The producer price index, which measures the earnings companies get from products they are developing, rose 0.3% for the month and 7.4% for the year. Economists polled by Dow Jones had been looking for a 0.2% gain.

Core PPI, which excludes food and energy, rose 0.4%, also missing expectations for a 0.2% increase. Core PPI rose 6.2% year over year, compared with 6.6% in October.

The report sent stocks lower after previously signaling a positive start on Wall Street. U.S. Treasury yields were higher. The market will now turn its attention to the more closely watched consumer price index, which is due to be released Tuesday morning.

The red-hot inflation data has the Fed on track to raise interest rates again next week, possibly by 0.5%, pushing the benchmark lending rate to a target range of 4.25%-4.5%. Policymakers have been pushing interest rates higher to quell stubborn inflation that has emerged over the past 18 months and has been largely dormant for more than a decade.

“The monthly rise in producer prices points to the need for continued tightening, albeit at a slower pace,” said Jeffrey Roach, chief economist at LPL Financial. “The inflation pipeline is clearing, and consumer prices will slowly approach the Fed’s longer-term target.”

Services inflation accelerated this month, rising 0.4 percent after rising just 0.1 percent the previous month. A third of those gains came from financial services, which surged 11.3 percent. This was partly offset by a sharp drop in the cost of passenger transport, which fell by 5.6%.

On the commodity front, the index rose just 0.1%, sharply down from October’s 0.6% gain. The slight increase came despite a 38.1 percent increase in prices for both fresh and dried vegetables. While the gasoline index fell 6%, prices rose across several food categories.

Roach said the soaring food price index “could be an anomaly and not necessarily reflect a change in trend.”

The news comes amid other signs that price increases are slowing at least from the pace that has pushed inflation to its highest level in more than 40 years. However, Friday’s data tends to be a leading indicator of underlying price pressures, suggesting that getting rid of inflation may be a long and difficult task.

This was the third straight month that the headline PPI rose 0.3%. On an annual basis, the increase was down from a peak of 11.7% hit in March, but still well above pre-pandemic pace going back at least to 2010.

The increase came despite a 3.3% drop in final demand energy costs. This was offset by a similar 3.3% increase in the food index. The trade index rose 0.7%, while the transportation and storage index fell 0.9%.

Excluding food, energy and trade services, PPI rose 0.3% month-on-month and 4.9% year-on-year, the lowest since April 2021.

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