PPI Comes In Hot: Core Producer Prices Jump Most Since 2014

While retail sales came in disappointing for the month of November with October revised downward, the Fed, which is certain to hike rates, got some help guiding its decision when moments ago PPI, or the Producer Price Index for Final Demand came in far hotter than expected, rising 0.4% in November, well above the 0.1% expected, and above last month's unchanged print. On an annual basis, PPI jumped 1.3%, the largest rise since moving up 1.3% for the 12 months ended November 2014.

Core PPI also jumped by 0.4%, above the 0.1% expected. On an annual basis, core PPI rose 1.6%, above the 1.3% expected, and above last month's 1.2% print.

For the 12 months ended in November, the index for final demand less foods, energy, and trade services climbed 1.8 percent, the largest rise since advancing 1.8 percent for the 12 months ended August 2014.

According to the BLS, over 80% of the advance in the final demand index is attributable to a 0.5-percent rise in prices for final demand services, driven by a 1.3% spike in trade. The index for final demand goods increased 0.2%. On the other hand prices for guestroom rental fell 3.3% as the substitution effect by AirBNB and the like appears to be having a deflationary impact on hotel bookings.

Some more details from the report:

Final demand services: The index for final demand services moved up 0.5 percent in November, the largest rise since increasing 0.9 percent in January 2016. Over 80 percent of the November advance can be traced to margins for final demand trade services, which climbed 1.3 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services both inched up 0.1 percent.

 

Product detail: A quarter of the November increase in prices for final demand services is attributable to margins for apparel, jewelry, footwear, and accessories retailing, which advanced 4.2 percent. The indexes for fuels and lubricants retailing; machinery, equipment, parts, and supplies wholesaling; food and alcohol retailing; food and alcohol wholesaling; and inpatient care also moved higher. In contrast, prices for guestroom rental fell 3.3 percent. The indexes for cleaning supplies and paper products retailing and for portfolio management also decreased. (See table 4.)

 

Final demand goods: Prices for final demand goods moved up 0.2 percent in November following a 0.4- percent increase in October. Leading the November advance, the index for final demand goods less foods and energy rose 0.2 percent. Prices for final demand foods also moved higher, climbing 0.6 percent. Conversely, the index for final demand energy declined 0.3 percent.

 

Product detail: In November, prices for iron and steel scrap jumped 11.4 percent. The indexes for beef and veal, fresh fruits and melons, pharmaceutical preparations, electric power, and cigarettes also increased. In contrast, gasoline prices fell 2.9 percent. The indexes for fresh and dry vegetables and for light motor trucks also decreased.

While some have speculated that the rising dollar should quench the recent rise in inflation, at least as of November this has yet to be noted; it is also unclear how much of an impact a stronger dollar wil have on US service demand, which rose at the highest pace since the start of the year.