Muted wholesale inflation rate likely gives final go-ahead for Fed to cut interest rates
2024-12-12
Category: economic

By Jeffry Bartash
Core producer-price index rises a scant 0.1% in November
The numbers: A key measure of U.S. wholesale inflation posted a small increase in November and probably added the final nail in the coffin in favor of a widely expected reduction in interest rates next week.
The less volatile core measure of the producer-price index rose a scant 0.1% last month, the government said Thursday. That was a tick below the Wall Street forecast.
The core rate omits up-and-down food, energy and trade margins and is seen by the Federal Reserve as a better predictor of future trends.
The 12-month core rate of wholesale inflation was unchanged at 3.5%.
The overall PPI, meanwhile, increased by a greater-than-expected 0.4% last month, double the Wall Street forecast.
A big increase in egg prices drove up food costs and contributed to the higher headline number.
Key details: The increase in wholesale prices in the 12 months that ended in November climbed to 3.0% from 2.6% and touched the highest level in almost two years.
Wholesale food costs shot up 3.1% - the biggest increase in two years - largely because of soaring egg prices.
The wholesale cost of eggs surged 55% due a major outbreak of bird flu that has resulted in the slaughter of huge numbers of chickens.
The cost of services, the biggest source of recent inflation, rose a mild 0.2% in November. They've risen 3.9% in the past year, however, and that's still much too hot for the Fed.
On the brighter side, the cost of partly finished goods and raw materials remained quite tame. Both categories show declines in the past year, suggesting inflation is unlikely to head higher.
Big picture: Consumer inflation has gotten stuck around 3% and wholesale prices are still rising faster than usual, but the details of the PPI report suggest inflation in the guts of the economy could slow further in 2025.
Looking ahead: "CPI is always going to get the headlines, but it doesn't mean the PPI isn't just as important on where inflation is headed," said senior economist Kurt Rankin of PNC Financial Services.
PNC sees inflation headed toward the low 2% range by the middle of next year.
Market reaction: The Dow Jones Industrial Average  and S&P 500  were set to open slightly lower in Thursday trading.
-Jeffry Bartash
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