US wholesale inflation shot higher last month, an unwelcome sign that some prices could be heating up before they come down the pike to consumers.
The Producer Price Index, a measurement of average price changes seen by producers and manufacturers, rose 0.4% on a monthly basis and 3% for the 12 months ended in November, marking an acceleration from October, when prices increased 0.3% and 2.6%, respectively, according to Bureau of Labor Statistics data released Thursday.
October’s monthly and annual rates were both revised higher from their initial estimates.
Still, as of November, PPI is at the highest annual rate since February 2023, BLS data shows.
However, economists and market participants still expect the Federal Reserve to cut rates by a quarter-point next week. A closely watched gauge of underlying wholesale inflation grew more modestly and a chunk of November’s increase could be attributed to a spike in egg prices as a deadly bird flu ripples through flocks.
“Producer prices, and the broader inflation complex, are on an extended and bumpy journey to the Fed’s goal,” Oren Klachkin, Nationwide’s financial markets economist, wrote on Thursday, adding that this week’s inflation data “shouldn’t tip the Fed’s scales next week, and we expect another [quarter-point] cut. But evidence of slower disinflation suggests a policy pause is in the cards for early 2025.”
Scorching egg prices behind burst of food inflation
However, food prices also surged last month by 3.1% — the category’s largest monthly spike since November 2022. The index for chicken eggs, which soared 54.6% from October was the biggest culprit and accounted for a quarter of the overall monthly jump in the PPI.
An ongoing deadly avian flu coupled with holiday-based demand has caused shortages and driven egg prices higher.
Food and energy prices also can experience dramatic shifts on a month-to-month basis because of one-time or atypical events such as weather, supply disruptions or disease.
“Food prices are volatile, impacted not only by the energy costs used to transport and produce them, but also unpredictable events such as weather,” Elizabeth Renter, NerdWallet’s senior economist wrote in commentary issued Thursday. “October’s growth in final demand food was flat, so this most recent spike doesn’t necessarily signal a trend.”
However, she noted, consumers already are seeing higher inflation at the grocery store.
“If November’s wholesale food price growth is passed along to consumers, we could experience higher grocery bills at the time of year many are cooking for family and friends,” she wrote.
Solid core but ‘higher-than-desired’ price pressures
Because food and energy prices can be quite volatile, economists closely watch “core” measurements of price gauges, which strip out those categories, to get a better sense of underlying inflation
Core PPI moved up 0.2% for the month, slowing from 0.3% in October and landing in line with expectations. On an annual basis, core PPI held at 3.4%. Like the overall PPI, core’s annual rate was also upwardly revised.
While a chunk of November’s increase can be attributed to atypical events, the overall data shows “higher-than-desired inflationary pressures across a wide range of both goods and services,” said Kyle Anderson, economist at Indiana University.
“One of the reasons we pay a lot of attention to the PPI is because it sort of foreshadows prices that may be paid in the future by consumers,” said Anderson, a clinical assistant professor at the university’s Kelley School of Business in Indianapolis. “So, it certainly adds to the concern that the Consumer Price Index is going to potentially continue to be higher than desired over the coming months.”
The CPI is the most widely used inflation gauge, as it captures prices changes for a broad basket of goods and services commonly purchased by consumers. On Wednesday, the November CPI moved higher, landing in line with expectations; however, it also showed some stagnation in the Federal Reserve’s process of reining in inflation.
November’s PPI, however, came in hotter than economists had expected.
They anticipated producer-level prices would rise 0.2% on a monthly basis and 2.6% annually, marking an increase from October’s initial estimate of 2.4%, according to FactSet. The headline PPI was expected to increase partly due to unfavorable comparisons to this time last year, when inflation slowed sharply.
