| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.3% | 0.1% to 0.3% | 0.4% | 0.2% | 0.3% |
| PPI-FD - Y/Y | 2.6% | 2.4% to 2.7% | 3.0% | 2.2% | 2.6% |
| Ex-Food & Energy - M/M | 0.2% | 0.1% to 0.3% | 0.2% | 0.3% | |
| Ex-Food & Energy - Y/Y | 3.2% | 3.2% to 3.2% | 3.4% | 3.1% | |
| Ex-Food, Energy & Trade Services - M/M | 0.1% | 0.3% | |||
| Ex-Food, Energy & Trade Services - Y/Y | 3.5% | 3.5% |
Highlights
U.S. wholesale price inflation as measured by the Producer Price Index for final demand jumped in November by 0.4 percent, following a revised 0.3 percent uptick (previously +0.2 percent) in October, and exceeding expectations for a 0.3 percent rise in the Econoday survey of forecasters. Final demand prices advanced 0.2 percent in September and 0.3 percent in August.
The BLS said nearly 60 percent of the overall monthly rise in final demand prices was due to a 0.7-percent increase in prices for final demand goods picking up the pace after just a 0.1 percent rise in October. Prices for final demand services moved up 0.2 percent, slowing down from October's 0.3 percent increase.
So, while this will feed into higher food prices in December, it should not deter the Federal Reserve from cutting rates again when they meet next week.
Compared to November 2023, final demand PPI rose 3 percent, the biggest increase since February 2023 (+4.7 percent). This follows a 2.6 percent rise for the 12 months ended in October.
Food prices surged 3.1 percent after being flat in October and have risen by 5.1 percent from November 2023 (compared to +2.7 percent year-over-year in October). Energy prices in November rose 0.2 percent after a 0.1 percent rise in October, but plunged 6.2 percent compared to November 2023 (this after prices plummeted 8.6 percent on an annual basis in October).
November final demand prices excluding food and energy rose 0.2 percent following a 0.3 percent rise in October and are up 3.4 percent from a year ago after a 3.1 percent rise in October.
Final demand prices excluding foods, energy, and trade services saw just a 0.1 percent uptick in November following a 0.3 percent rise in October, and +0.1 percent in September. For the 12 months ended in November, prices for final demand less foods, energy, and trade services rose 3.5 percent, matching the pace set in October.
The BLS said nearly 60 percent of the overall monthly rise in final demand prices was due to a 0.7-percent increase in prices for final demand goods picking up the pace after just a 0.1 percent rise in October. Prices for final demand services moved up 0.2 percent, slowing down from October's 0.3 percent increase.
So, while this will feed into higher food prices in December, it should not deter the Federal Reserve from cutting rates again when they meet next week.
Compared to November 2023, final demand PPI rose 3 percent, the biggest increase since February 2023 (+4.7 percent). This follows a 2.6 percent rise for the 12 months ended in October.
Food prices surged 3.1 percent after being flat in October and have risen by 5.1 percent from November 2023 (compared to +2.7 percent year-over-year in October). Energy prices in November rose 0.2 percent after a 0.1 percent rise in October, but plunged 6.2 percent compared to November 2023 (this after prices plummeted 8.6 percent on an annual basis in October).
November final demand prices excluding food and energy rose 0.2 percent following a 0.3 percent rise in October and are up 3.4 percent from a year ago after a 3.1 percent rise in October.
Final demand prices excluding foods, energy, and trade services saw just a 0.1 percent uptick in November following a 0.3 percent rise in October, and +0.1 percent in September. For the 12 months ended in November, prices for final demand less foods, energy, and trade services rose 3.5 percent, matching the pace set in October.
Market Consensus Before Announcement
Headline PPI-FD is expected to show increases of 0.3 percent on month and 2.6 percent on year. Ex-food and energy PPI-FD is expected up 0.2 percent and 3.2 percent, respectively.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
