Wholesale Price Inflation Spikes To A Record, Rises 9.6% Over Past 12 Months

The rising inflation rate is becoming a cause of concern as the Labor Department announced on Tuesday that wholesale prices rose at a record-breaking speed in November.

The Producer Price Index for final demand rose 0.8 percent in November, according to the data released by the U.S. Bureau of Labor Statistics.

The final demand index surged 9.6 percent over the previous 12 months ending in November, the highest since the annual data first calculated in November 2010.

Economists were expecting an annual gain of 9.2%, according to FactSet.

The analysis on wholesale prices comes after last week’s measure of consumer inflation that showed prices hiked at an annual rate of 6.8% in November, the highest in 40 years.

Excluding food, energy and trade services, prices moved up 0.7% for the month, the highest leap since the increase of 0.8 percent in July, while annually, the prices rose 6.9%.

The PPI was mainly driven by the increase in prices for iron and steel scrap, along with gasoline, fresh fruit and vegetables. Prices for final demand goods rose 1.2% last month, while prices of services increased 0.7%.

Final demand energy prices rose 2.6% in the reporting month, despite crude prices being contrarian.

Food prices were up 1.2%, while transportation and warehousing prices climbed to 0.6 percent and 1.9 percent, respectively.

Prices for iron and steel scrap increased 10.7 %, while prices for gasoline, fresh fruits and melons, fresh and dry vegetables, industrial chemicals, and jet fuel also rose.

The Fed begins its two-day meeting, on Tuesday, with a possibility that it will remove its economic assistance promptly and start raising interest rates around the mid of 2022.

Fed officials for months had been maintaining the stance that inflation is “transitory”, and with time, the Covid pandemic-induced factors would recede. However, in recent days Chairman Jerome Powell and others have suggested that the term no longer is suitable and likely will be removed from future central bank statements.

“If we look through the so far short-lived Omicron dip, admittedly a leap of faith at this point, we are left with the overriding question of inflation and where it is headed,” Ameriprise Chief Market Strategist David Joy wrote Monday. “This is the primary question the Fed will face this week. It has already begun to taper, and Powell has dropped the transitory qualifier”

“And there is every reason to expect that the pace of tapering will be accelerated,” Joy added. “The Fed is being encouraged to complete taper by March, clearing the way for greater flexibility to raise rates as soon as it sees fit.”

Meanwhile, the NFIB Small Business Optimism Index increased 0.2 points in the reporting month to 98.4 from a six-month low of 98.2 in October, surpassing the 98.0 consensus estimate from economists polled by The Wall Street Journal.

An uptick in price raising practices among small businesses is observed, according to the survey. Around 59% of owners reported an increase in average selling prices, up from 53% in the preceding month, the highest level since 1979.

“As the end of the year nears, the outlook for business conditions is not encouraging to small business owners as lawmakers propose additional mandates and tax increases,” said NFIB Chief Economist Bill Dunkelberg. “Owners are also pessimistic as many continue managing challenges like rampant inflation and supply chain disruptions that are impacting their businesses right now.”