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What you need to know
- Unexpectedly, November’s wholesale inflation figures showed an increase. Producer Price Index increased 0.4% from the previous month.
- As a result of bird flu, food prices increased by more than 54 percent.
- In general, the PPI did not contain enough information to convince economists that the Federal Reserve should cut interest rates during its December meeting.
Wholesale prices increased faster than economists expected in November, logging the largest jump in the annual rate of wholesale inflation since February 2023—thanks in part to chicken eggs.
According to Bureau of Labor Statistics, the Producer Price Index for November revealed that wholesale prices of goods and services increased by 0.4% compared with previous months. This resulted in a 3% increase in annual inflation. These latest figures follow an increase in wholesale price in October.
Increased food costs drive up November’s inflation
Price increases for chicken eggs were over 54%. This contributed to an overall increase of 0.7% in goods prices compared with last month.
In recent months, egg prices have risen partly because of an outbreak of bird flu that has affected the commercial flocks in America. The wholesale price inflation may affect the consumer. Prices for fresh and dry vegetables, fresh fruits and melons, and processed poultry, alsoalso rose, BLS said.
Even after taking into account the rise in food costs, certain economists stated that wholesale inflation showed prices to be under general control. Federal Reserve will not be stopped from cutting interest rate next week by the surge in producer prices.
“PPI isn’t so scary once you get past the headline. While the underlying data quell fears of a new inflation surge, they don’t suggest a quick fall to two percent either,” Oren Klachkin is an economist with Nationwide Financial Markets. “Producer prices, and the broader inflation complex, are on an extended and bumpy journey to the Fed’s goal.”
While rates may be reduced, producer prices are higher than expected.
Wells Fargo projected a rate of annual inflation of 2.7% based on the PPI report for November. Yesterday, the Consumer Price Index for November showed a rise in inflation which was consistent with predictions by economists.
Monthly costs would be higher if volatile energy and food prices were included. “core” The PPI rose by a modest 0.2%. Inflation in wholesale services also rose by 0.2% per month, which led some economists view the PPI increase as temporary.
“Goods prices were the driver of the upside surprise, with an unlikely-to-be-sustained rise in food prices pushing the headline index higher. Encouragingly, though, core producer prices registered the smallest monthly gain since May 2023,” Matthew Martin, Senior Economist at Oxford Economics.
Market watchers closely examine pricing data as the Federal Reserve prepares to meet on Monday to decide whether or not to cut rates again. Officials have stated that inflation may influence their decision.
The economists did not expect the data on inflation to derail the anticipated rate reduction at the December meeting, despite the increase in November.
“Despite the upside surprise to the headline producer prices, the details of November's report support another 25bps (basis points) rate cut from the Federal Reserve this month,” Martin writes.
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