A measure of wholesale prices rose more than expected in November as questions arose about whether progress in reducing inflation has slowed, the Bureau of Labor Statistics reported Thursday.
The producer price index, or PPI, which measures what producers get for their products at the final demand stage, rose 0.4% this month, higher than the Dow Jones consensus estimate of 0.2%. On an annual basis, the PPI increased by 3%, the largest progress since February 2023.
Excluding food and energy, however, core PPI rose 0.2%, meeting forecast. Moreover, the PPI increase due to the deduction of trading services remained at only 0.1%. The year-on-year increase of 3.5% was also the largest since February 2023.
In other economic news, the Department of Labor reported Thursday that initial unemployment insurance claims for the week ending Dec. 7 totaled a seasonally adjusted 242,000, significantly higher than the forecast 220,000 and an increase of 17,000 from the previous period.
On the inflation front, the news was mixed.
Prices for final demand goods rose 0.7% this month, the biggest move since February this year. About 80% of this move came from a 3.1% increase in food prices, according to the BLS.
Within the food category, chicken eggs rose 54.6%, following a general acceleration in products such as dry vegetables, fresh fruit and poultry. Retail egg prices rose 8.2% this month and were 37.5% higher than a year ago, the BLS said Wednesday in a separate consumer prices report.
Services costs increased by 0.2%, driven by a 0.8% increase in trade.
The PPI release comes a day after the BLS reported that the consumer price index, or CPI, a more widely cited inflation gauge, also rose higher in November to 2.7% on a 12-month basis and 0.3% month-on-month.
Despite seemingly stubborn inflation, markets overwhelmingly expect the Federal Reserve to cut its key interest rates next week. Futures market traders are implying a near-certainty cut of a quarter of a percentage point when the rate-setting Federal Open Market Committee concludes its meeting on Wednesday.
Following the release, economists viewed this week's data as generally favorable, with underlying indicators still pointing to enough disinflation to eventually return the Fed to its 2% target.
The Fed uses the Commerce Department's personal consumption expenditures (PCE) price index as its primary inflation gauge and forecasting tool. However, data from the CPI and PPI are included in that measure.
An Atlanta Fed tracker puts November's PCE at 2.6%, up 0.3 percentage points from October, and core PCE at 3%, up 0.2 percentage points. The Fed generally considers core data to be a better long-term indicator. A few economists said the details in the report point to a smaller monthly increase in PCE inflation than they had previously expected.
“It appears that only an exogenous shock, such as dramatic shifts in rate policy, could derail supply-side contributions to the return of inflation to the Federal Reserve's average target of 2.0% in the near term.” , wrote PNC top economist Kurt Rankin.
Stock market futures were slightly negative following the economic news. Treasury yields were mixed, with the chance of a rate cut next week still around 98%, according to the CME Group.
One reason markets expect the Fed to cut spending even if inflation persists is that Fed officials are increasingly concerned about the labor market. Nonfarm payrolls have increased every month since December 2020, but the gains have slowed recently, and Thursday brought news that layoffs could increase the longer unemployment lasts.
Claims for unemployment benefits reached their highest level since early October, while continuing claims, which are lagging a week, rose to 1.89 million. The four-week moving average of persistent claims, which smooths out weekly volatility, rose to the highest level in just over four years.
