What Does the Latest PPI Reveal?
The Producer Price Index (PPI) for final demand rose 0.4% in November, exceeding the forecasted 0.2%, according to the U.S. Bureau of Labor Statistics. This marks a continuation of increasing inflationary trends, following gains of 0.3% in October and 0.2% in September. Over the past 12 months, the PPI advanced 3.0%, the largest annual rise since February 2023.
Core PPI, which excludes volatile components like food, energy, and trade services, edged up 0.1% in November and increased 3.5% year-over-year, signaling persistent price pressures in underlying categories.
What’s Driving the Increase?
The rise in November’s PPI is attributed primarily to goods, with the index for final demand goods climbing 0.7%, its highest monthly increase since February. Notably, food prices surged 3.1%, with a staggering 54.6% spike in chicken egg prices leading the gains. Other contributors included fresh and dry vegetables, fresh fruits, and processed poultry. In contrast, diesel fuel and organic chemicals prices posted declines.
Final demand services also advanced by 0.2%, driven by an 0.8% increase in trade services margins. Specific gains were seen in machinery and vehicle wholesaling, securities brokerage, and retailing of automotive fuels and food. Conversely, prices for airline passenger services and guestroom rentals fell.
How Are Labor Market Metrics Shaping Up?
The labor market showed signs of softening, with initial unemployment claims rising to 242,000 for the week ending December 7, above the forecasted 221,000. This represents a 17,000 increase from the prior week’s revised level. The 4-week moving average, a more stable metric, also rose to 224,250, its highest level since late November 2021. Insured unemployment rose to 1.886 million, with its 4-week average climbing to 1.888 million.
What’s the Market Outlook?
The stronger-than-expected PPI data and rising unemployment claims create a mixed market outlook. Inflationary pressures could prompt the Federal Reserve to maintain its restrictive monetary policy stance, which might weigh on equities and bonds. However, the softening labor market could moderate the Fed’s tightening trajectory.
In the short term, traders should anticipate cautious market movements with potential volatility. The inflation-driven PPI data leans bearish for equity and bond markets, while a softer labor market could support a neutral-to-bullish view for safe-haven assets like gold.
