US producer prices surge on costly eggs, but disinflationary trend intact
Adds forecasts for PCE inflation in paragraphs 12-14; details on jobless claims data in paragraphs 23-25; analyst comments
Producer prices increase 0.4% in November
Goods, primarily eggs account for bulk of the rise in PPI
Small gain in services bodes well for core PCE inflation
Weekly jobless claims increase 17,000 to 242,000
Continuing claims advance 15,000 to 1.886 million
By Lucia Mutikani
WASHINGTON, Dec 12 (Reuters) -U.S. producer prices increased by the most in five months in November, but easing costs of services such as portfolio management fees and airline fares offered hope that the disinflationary trend remains in place despite stalled progress.
A surge in the price of eggs amid an avian flu outbreak accounted for much of the bigger-than-expected rise in producer inflation last month. Other details of the report from the Labor Department on Thursday were, however, mostly favorable, prompting economists to sharply lower their estimates for the personal consumption expenditures (PCE) price measures tracked by the Federal Reserve for its 2% inflation target.
The report, together with other data showing more people were collecting unemployment checks at the end of November relative to the beginning of the year as demand for labor cools, cemented investor expectations that the U.S. central bank would deliver its third consecutive interest rate cut next week.
Inflation could, however, rise next year should President-elect Donald Trump's incoming administration push ahead with tariff increases and mass deportations of undocumented immigrants.
"We see little evidence of pipeline price pressure in the producer price data," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The foundations are in place for core PCE inflation to fall further next year, though the new administration will snatch defeat from the jaws of victory if they press ahead with higher import tariffs and deportations."
The producer price index for final demand jumped 0.4%, the largest gain since June, after an upwardly revised 0.3% increase in October, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI gaining 0.2% following a previously reported 0.2% rise in October.
In the 12 months through November, the PPI shot up 3.0%. That was the biggest year-on-year increase since February 2023 and followed a 2.6% rise in October. The government reported on Wednesday that consumer prices increased by the most in seven months in November, while a measure of underlying price pressures continued to run warmer over the past four months.
Wholesale goods prices surged 0.7%, accounting for nearly 60% of the monthly rise in the PPI, after edging up 0.1% in October. Food prices soared 3.1%, making up 80% of the increase in goods prices. Wholesale egg prices vaulted 54.6%, the most since June, after declining 20.6% in October.
Prices for fresh and dry vegetables, fresh fruits and melons also rose. Energy prices gained 0.2%. Excluding the volatile food and energy components, goods prices rose 0.2%, advancing by the same margin for five straight months.
SERVICES PRICES TAMER
Services prices gained 0.2% after climbing 0.3% in October. Portfolio management fees fell 0.6% after surging 3.1% in October. Airline passenger fares decreased 2.1% after increasing 2.6% in the prior month. The cost of hotel and motel rooms dropped 3.1% after rising 2.8% in October.
Prices for physician and hospital outpatient care were unchanged, but the cost of hospital inpatient care rose 0.2%.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among components that go into the calculation of the PCE price index, excluding food and energy. Following the PPI data, economists slashed their estimates for November's so-called core PCE inflation to 0.11% from as high as 0.3% on Wednesday after the CPI report.
Core PCE inflation is one of the measures tracked by the Fed for monetary policy. It rose 0.3% for a second straight month in October. Core inflation was forecast increasing 2.8% year-on-year in November, matching October's advance.
"If our forecast proves correct, it would be a relief and leave us less worried about the recent trajectory of inflation," said Aditya Bhave, a U.S. economist at Bank of America Securities. "That said ... progress on inflation has stalled of late, and there are upside risks to inflation on the horizon."
Stocks on Wall Street were mostly lower. The dollar was steady versus a basket of currencies. U.S. Treasury yields rose.
Financial markets have almost fully priced in a quarter-percentage-point rate cut at the Fed's Dec. 17-18 policy meeting, according to CME Group's FedWatch Tool.
The Fed kicked off its monetary policy easing cycle in September. Its benchmark overnight interest rate is now in the 4.50%-4.75% range, having been hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
A separate report from the Labor Department showed initial claims for state unemployment benefits increased 17,000 to a seasonally adjusted 242,000 for the week ended Dec. 7.
The jump likely reflected volatility after the Thanksgiving holiday and probably does not mark an abrupt shift in labor market conditions. Claims are likely to remain choppy in the weeks ahead. Nonetheless, the labor market is slowing.
Though job growth accelerated in November after being severely constrained by strikes and hurricanes in October, the unemployment rate ticked up to 4.2% after holding at 4.1% for two consecutive months. A stable labor market is critical to keeping the economic expansion on track.
Historically low layoffs account for much of the labor market stability, and have driven consumer spending.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 15,000 to a seasonally adjusted 1.886 million during the week ending Nov. 30, the claims report showed.
The elevated so-called continued claims are a sign that some laid-off people are experiencing longer bouts of unemployment. Continued claims are still running high in Washington State, despite the end early last month of a strike at BoeingBA.N.
They remain lofty in North Carolina in the aftermath of Hurricane Helene and in Michigan following job losses in the automobile sector. The median duration of unemployment spells rose to the highest level in nearly three years in November.
"While the labor market on balance appears healthy, there are some pockets of softness, and the Fed wants to guard against that turning into more significant weakness," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Inflation gauges https://reut.rs/3Ddga5q
Continuing jobless claims https://reut.rs/4fkWKJ3
Initial jobless claims https://reut.rs/3ZPTxwU
Reporting by Lucia Mutikani; Editing by Andrea Ricci
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
