EconoFACTS

December 09, 2022 | 09:07

U.S. Producer Prices ... Food for Thought?

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

It may look like a light data day but what it is lacking in quantity it is making up for with quality.

That was, admittedly, a very awkward way of saying that there may be only two releases today, but the Fed will be watching them like a hawk ahead of next week's decision. They are: producer prices and, later this morning, a measure of inflation expectations (courtesy of the U of Michigan).

U.S. producer prices for November were mixed, with the headline a smidge above expected at +0.3% m/m, and the year-over-year trend slowing to +7.4% from 8.0% in the prior month, the slowest rate since May 2021.

Here is the breakdown within the three categories of final demand:

goods (+0.1%)
services (+0.4%)
construction (+0.1%)

But goods do not get a free pass....worrying was the 21.1% surge in crude foods, the most in over a decade, or a record 61.7% above year-ago levels. It reminded me of the UN's FAO, which warned this week that climate change and the war in Ukraine will keep global food prices higher than before pandemic.

Final demand less foods was up a calmer 0.1% m/m, or 6.9% year-over year. And, the standard measure of core PPI (excluding food & energy) was up 0.3% in the month (most since June), but eased to 6.2% above year-ago levels, also disappointing expectations though the slowest rate since May 2021.

Bottom Line: The latest PPI report may not exactly bolster Fed Chair Powell's view (and others on the Committee, such as Governor Cook and Vice-Chair of Supervision Michael Barr) that the time for "moderating the pace of rate hikes" is near, but it doesn't take away from it. It does, however, put more weight on next week's November CPI, which lands the day before the big announcement.

Wow!