PPI Rises Faster Than Expected, Clouding Near-Term Rate Cut Hopes

Source: Coindoo Original Title: PPI Rises Faster Than Expected, Clouding Near-Term Rate Cut Hopes Original Link: U.S. producer prices moved higher in November, adding to signs that inflation pressures have not fully faded.

According to the U.S. Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand rose 0.2% month over month. On a yearly basis, producer prices climbed 3.0%, above market expectations of 2.7%, signaling that wholesale inflation remains firmer than anticipated.

Key takeaways

• Producer prices rose faster than expected, with PPI up 3.0% year over year
• Energy and goods prices were the main sources of inflation pressure
• Core producer inflation remains elevated, signaling sticky underlying costs
• Retail sales beat forecasts, supporting the case against an early rate cut

Energy and goods drive the PPI increase

The November increase was largely driven by goods prices, which jumped 0.9% for the month, the strongest rise since early 2024. Energy played the biggest role, with sharp increases led by gasoline prices. More than half of the monthly gain in goods prices came from fuel-related costs.

In contrast, prices for final demand services were unchanged, showing that inflation pressures remain concentrated in specific sectors rather than across the entire economy.

Core inflation at the producer level stays elevated

Core producer inflation, which excludes food, energy, and trade services, rose 0.2% in November after a stronger increase in October. On a year-over-year basis, core PPI climbed to 3.5%, the fastest annual pace seen in several months. This suggests that underlying cost pressures facing businesses are still elevated and could take longer to ease.

Strong retail sales point to resilient demand

Inflation data was accompanied by signs of solid consumer activity. U.S. retail sales rose 0.6% month over month in November, beating expectations for a 0.5% increase. The stronger reading highlights continued consumer demand, which can make it more difficult for inflation to cool quickly.

CPI shows easing, but not enough to change the Fed outlook

Consumer inflation data released a day earlier showed some moderation. December’s Consumer Price Index indicated that core consumer prices rose 0.2% on the month and 2.6% over the year, matching November’s pace and marking the slowest annual increase since March 2021. Headline inflation increased 0.3% on the month and 2.7% year over year, in line with expectations.

Rate cuts remain unlikely in the near term

Taken together, firmer-than-expected producer inflation, strong retail spending, and only gradual easing in consumer prices suggest the Federal Reserve is unlikely to move quickly toward interest rate cuts. While inflation is no longer accelerating, the data does not yet point to the kind of sustained cooling that would justify near-term policy easing.