US Wholesale Inflation Sees Sharp Rise in November

WASHINGTON (AP) — Wholesale prices in the United States surged last month, indicating that some inflationary pressures persist in the economy, despite an overall decline in inflation from the peaks seen more than two years ago.

The Labor Department announced on Thursday that its producer price index (PPI)—a measure of inflation before it affects consumers—rose by 0.4% in November compared to October. This reflected an increase from the 0.3% rise recorded in the prior month. Year-over-year, wholesale prices climbed by 3% in November, marking the most substantial increase since February 2023.

When excluding the more volatile food and energy sectors, core producer prices increased by 0.2% from October and showed a 3.4% rise compared to November 2023.

Food Prices Impact Inflation

The uptick in wholesale inflation was heavily influenced by rising food prices, which exceeded economists' expectations. Notably, the costs of fruits, vegetables, and eggs contributed to a 3.1% increase in wholesale food prices compared to October, following a month where these prices remained unchanged.

This wholesale price report came on the heels of the government’s earlier announcement that consumer prices rose by 2.7% in November from a year prior, an increase from the 2.6% rate observed in October. The spike was driven by higher costs for used cars, hotel stays, and groceries, indicating that inflation has not yet been fully controlled.

Federal Reserve's Response

Since reaching a four-decade high of 9.1% in June 2022, inflation in consumer prices has significantly decreased. However, it remains persistently above the Federal Reserve's target of 2%.

Despite the modest rises in inflation last month, the Federal Reserve is expected to cut its benchmark interest rate next week for the third consecutive time. In 2022 and 2023, the Fed had increased its short-term interest rate 11 times, the highest level in two decades, to combat the inflation surge that followed the robust economic recovery from the COVID-19 recession. As inflation has cooled, the central bank began reversing its tightening measures starting last fall.

In September, the Fed implemented a notable half-point reduction to its benchmark rate, followed by a quarter-point cut in November, lowering it to 4.6% from a four-decade peak of 5.3%.

Looking Ahead

The producer price index serves as an early indicator of potential consumer inflation trends. Economists closely monitor it, especially because components like healthcare and financial services are included in the Fed’s favored inflation measure, the personal consumption expenditures (PCE) index.

Despite the overall increase in producer prices, some analysts, like Paul Ashworth from Capital Economics, pointed out that components impacting the PCE index were generally weak in November. This reinforces the likelihood that the Federal Reserve will proceed with interest rate cuts next week.

Concerns linger regarding President-elect Donald Trump’s policy agenda and its possible implications for future inflation levels and the Fed's rate decisions. While Trump has expressed intentions to lower prices, partly through encouraging domestic oil and gas production, some of his proposed policies—such as imposing significant tariffs on imports and deporting millions of undocumented workers—could be inflationary.

Nonetheless, traders on Wall Street predict a 98% chance of a third consecutive rate cut by the Federal Reserve next week, as indicated by the CME FedWatch tool.

inflation, wholesale, economy