Aircraft factory in Renton, USA
By Lucia Mutikani
WASHINGTON (Reuters) – US producer prices rose more than expected in November as supply constraints persisted, leading to the biggest annual gain since the series was recast 11 years ago and supporting opinions that the inflation could remain uncomfortably high for some time.
The Labor Department report released on Tuesday, which also showed strong growth in underlying producer inflation, came on the heels of news last week that annual consumer prices rose in November at the strongest pace since 1982.
Rising inflation complicates President Joe Biden’s economic agenda, including a $1.75 trillion budget to finance social policies and a climate package stuck in the US Congress.
Strong price pressures, coupled with a tightening labor market, are likely to prompt the Federal Reserve to announce that it will accelerate the reduction of its massive bond purchases when the authorities close on Wednesday a two-day meeting. The Fed would thus potentially start raising interest rates earlier than anticipated.
“Price metrics have been way above target for much longer than anticipated,” said Rubeela Farooqi, chief economist at High Frequency Economics in White Plains, New York. “These data support the Fed’s move to a faster cut (of stimulus) that will likely precede a faster tightening of monetary policy next year.”
The producer price index (PPI) for final demand jumped 0.8% last month, after rising 0.6% in October. The overall increase in the PPI was driven by a 0.7% rise in services, after a 0.2% gain in October. The acceleration in services reflected the 2.9% jump in portfolio management prices.
In the 12-month period up to November, the PPI soared 9.6%. This is the biggest gain since November 2010, after increasing by 8.8% in October.
Economists polled by Reuters were forecasting the PPI to rise 0.5% on a monthly basis and 9.2% year-on-year.
Excluding the volatile components of food, energy and trade services, producer prices increased by 0.7%. The so-called PPI core gained 0.4% in October.
In the 12-month accumulated through November, the PPI core jumped 6.9%, the biggest advance since the 12-month data were calculated for the first time in August 2014. The number came after rising 6.3% in October.
The Fed tracks the core personal consumption expenditure (PCE) price index for its flexible 2% inflation target.
The PCE core price index rose 4.1% in the 12 months to October, the highest since January 1991. November data will be released later this month.
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