Quiver Quantitative - In a significant development for the U.S. economy, producer-price inflation cooled in November, with the overall measure increasing by just 0.9% from a year ago, marking a deceleration in inflationary pressures. The data from the Bureau of Labor Statistics showed that the producer price index (PPI) for final demand remained unchanged month-over-month, reflecting a notable decline in energy costs. The core PPI, which excludes food and energy, also remained flat, registering a 2% increase year-over-year — the smallest gain since January 2021. This slowdown in producer prices, coupled with recent consumer price data, suggests that inflation is gradually returning to the Federal Reserve's 2% target.
The report indicated stability in both services and goods prices, with services prices unchanged for two consecutive months and goods prices remaining steady following a steep decline in October. This easing of inflationary pressures is reflected in the financial markets, where Treasury yields and the dollar declined, while stock futures experienced gains. Economists pay close attention to the PPI report, as it includes categories such as health-care items and portfolio management, which contribute to calculating the Fed’s preferred inflation measure, the personal consumption expenditures price gauge.
Market Overview: US producer prices: -Flat month-over-month (PPI for final demand). -Core PPI (excluding food/energy) unchanged, at lowest since January 2021. -Year-over-year inflation: PPI 0.9%, core PPI 2% (slowest in two years). -Energy prices fell 1.2% in November.
Market response: -Treasury yields and dollar declined. -Stock futures gained.
Key Points: -Easing inflation: Data reinforces optimism about inflation's retreat towards the Fed's 2% target. -Fed meeting: Dovish stance expected, potentially leaving rates unchanged. -Slower rate hikes? Continued inflation moderation could pave the way for a policy shift.
Looking AHead: -Fed's policy announcement on Wednesday afternoon could offer further clues about future interest rate hikes. -Continued monitoring of inflation data and market reactions is crucial.
Most of the components in the PPI report that feed into the Fed's inflation gauge showed softness in November. Key sectors like physician-care services, nursing-home care, and hospital outpatient care showed no increase, while areas like portfolio management and airline passenger services witnessed declines. This lessening of inflationary pressures across various sectors provides a clearer picture of the overall economic landscape and the Fed's likely response.
A less-volatile measure of the PPI, which excludes food, energy, and trade services, showed a slight 0.1% increase from the previous month and a 2.5% rise from the year earlier, representing the smallest annual gain since February 2021. These figures arrive just as Federal Reserve Chair Jerome Powell and other central bank officials are expected to leave the benchmark interest rate unchanged at the conclusion of their two-day policy meeting. The easing of producer-price inflation is a positive sign for the economy, indicating a move towards more stable and predictable economic conditions.
This article was originally published on Quiver Quantitative