The November increase in wholesale prices in the United States was 7.4 percent compared to a year ago. This marks a fifth consecutive slowdown in growth and is a sign that inflationary pressures are decreasing.
The latest year-on–year figure was down from 8.4% in October and from a peak of 11.74% in March. The government announced Friday that its producer price index (which measures costs before they reach consumers) rose 0.3% from October to November for the third month in a row.
However, the core producer price index, which excludes volatile food or energy costs, increased by 0.4% from October to November. From September to October, the core figure was only 0.1 percent higher. However, if you look at the past 12 months, core producer price increases were up 6.2% in November, compared to 6.7 percent in October.
These latest figures show a shift in inflation from goods towards services. The cost for goods increased by 0.1 percent in November from October, while wholesale gasoline prices decreased 6 percent. Food prices were not affected by the increase of 0.3 percent in October to November, which was driven by higher prices for vegetables, eggs, chicken, and other products.
However, services prices rose more with a 0.4 percent increase, mainly because of more expensive financial services. The wholesale cost of hotel rooms and airline tickets fell and overall service prices have declined over the past three month.
In a research note, PNC Financial Services Group stated that overall inflation was moving in the right direction, but at a slower pace. “The Federal Reserve will continue to tighten its monetary policy until consistent, clear signs of declining inflation are shown.”
Prices are still on the rise
Americans are still struggling to pay for their food, rent, and other services, such as haircuts and medical care, and restaurant meals. Several emerging trends have helped to slow inflation’s rise from its peak of four decades ago, which was reached at mid-year. Gas prices have fallen since reaching a high of $5 per gal ($1.32 per barrel) in June. According to AAA, the national average was $3.33 per gallon ($0.88 a liter) on Thursday. This is just below their previous year average.
And the supply chain disruptions which caused transportation delays and shortages of many goods (from patio furniture to curtains) are finally being addressed. The backlog of ships that took several weeks to unload in the US has been cleared by US ports. The cost of shipping a container from Asia to the US has fallen to pre-pandemic levels.
The result is that durable goods are becoming more affordable, including used cars and furniture, as well as appliances and certain electronic devices.
Friday’s producer price data will reflect inflation at an early stage of production and can often indicate where consumer costs are heading. Next week, the government will release its most striking inflation figure, a consumer price index. The latest CPI report for October showed a moderated inflation rate with prices 7.7 percent lower than a year ago. Although still high, this was the lowest year-on–year figure since January.
In a speech last week, Fed Chair Jerome Powell cited the recent drop in commodity prices to be an encouraging sign. Powell suggested that inflation-causing factors like rent and housing costs should be reduced next year.
The Fed Chairman also indicated that it is likely that the central bank will raise its benchmark rate by an even smaller amount next week. Investors anticipate a half point increase from Fed after four consecutive three quarters-point increases.
Powell said that the U.S.’s largest sector, the service sector, is still experiencing a rapid rise in prices. He noted that services inflation is largely driven by rapidly rising wages. This is because companies pass higher labor costs onto their customers by increasing prices, which drives up inflation.
Wages continue to rise quickly and could drive inflation higher for most next year. The government released last week’s November jobs report, which showed that average hourly wages had increased by 5.1 percentage points compared to a year prior. This is well ahead of the pre-pandemic pace. Powell said wage increases of 3.5 percent are needed to push inflation towards the Fed’s annual goal of 2 percent.