Price increases accelerated for US-based businesses as the previous year drew to a close, suggesting that inflation may not have reached its zenith and that consumer prices could soon experience a more rapid ascent. In November, US wholesale inflation accelerated, influenced in part by rapidly increasing energy prices, as indicated by data released on Wednesday that had been delayed due to a shutdown. The most recent Producer Price Index report indicated a 0.2% increase in prices for November compared to the previous month, leading to an annual rate of 3%, as reported. Wednesday’s data indicated that wholesalers and retailers appeared to be absorbing the majority of the significant costs associated with President Donald Trump’s extensive and substantial tariffs on imported goods. “Retailers are shielding consumers from further big increases in goods prices triggered by the tariffs,” Samuel Tombs noted in a communication. The Producer Price Index, which gauges the average change in prices that producers receive for their goods and services, acts as a potential indicator for the price changes consumers may experience in the forthcoming months.
The BLS refrained from issuing a distinct PPI report for October, similar to other significant economic reports affected by data collection during the shutdown, as the 43-day federal shutdown hindered the operations of statistical agencies. However, in contrast to those reports, the PPI managed to incorporate more comprehensive data for October – it was only the requests and submissions for price updates that experienced delays, as noted by BLS officials. In October, a decline in energy prices led to a more subdued overall reading: Producer prices increased by 0.1% from September and were up 2.8% year-over-year. Wednesday’s report indicated that wholesale inflation was more robust than earlier estimates for September. The annual rate has been adjusted upward to 3% from the previous 2.7%.
Excluding food and energy, which are prone to significant price fluctuations, the core PPI experienced a 0.3% increase in October, with prices remaining stable in November. Nevertheless, the annual rates strengthened to 2.9% in October and 3% in November. The most recent Producer Price Index offers insight into the strategies businesses are employing to manage the increased expenses resulting from President Donald Trump’s extensive tariffs on imported goods. Trade services, which assess profit margins for wholesalers and retailers, experienced a decline of 0.8% in both October and November. This trend may suggest that businesses are opting to absorb increased costs rather than completely transferring them to consumers. With the labor market exhibiting signs of weakness, the pace of wage growth has decelerated, and economic inequalities have become more pronounced. In response, certain businesses have opted to reduce prices rather than increase them, as a larger segment of the American population faces challenges related to affordability.
Excluding food, energy, and trade services, which are known for their volatility, the fundamental trend of wholesale inflation appears increasingly troubling: Prices surged by 0.7% in October and increased by 0.2% in November, resulting in an annual rate of 3.4% in October and subsequently 3.5% in November. The annual rate for PPI, excluding energy, food, and trade services, has reached its highest level in eight months. “Premature declarations of a peak in tariff-related inflation appear rather unconvincing after analyzing the data,” Joe Brusuelas stated. The recent PPI report provides indications relevant to the Federal Reserve’s favored inflation measure, given that various PPI metrics contribute to the Personal Consumption Expenditures price index. The CPI data for the fourth quarter, along with the most recent PPI data, indicate that the PCE price index is moving further away from the Fed’s 2% target rate, as noted by Pantheon’s Tombs. The PCE report for October and November, which will encompass the most recent spending data, is set to be published on Thursday, January 22.