US producer prices unchanged amid cheaper energy products

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. producer prices were unexpectedly unchanged in November amid cheaper energy goods, and underlying inflation pressures at the factory gate were muted.

The report from the Labor Department on Wednesday was consistent with a sluggish manufacturing sector and offered hope that overall inflation would continue to subside.

Federal Reserve officials were wrapping up their two-day meeting on Wednesday. The U.S. central bank is expected to keep its policy rate unchanged in the current 5.25%-5.50% range, having raised it by 525 basis points since March 2022.

“The only conclusion Fed officials can make as they vote on policy is that there is no inflation at the producer level and this makes it even more likely they will bring inflation down for a soft landing without bringing the economy to its knees,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

The unchanged reading in the producer price index for final demand in November reported by the Labor Department’s Bureau of Labor Statistics followed a revised 0.4% drop in October. The PPI was previously reported to have declined 0.5% in October. Economists polled by Reuters had forecast the PPI gaining 0.1% last month.

Goods prices were unchanged in November as a 1.2% decline in the cost of energy products was offset by a 0.6% rebound in food prices. Goods prices dropped 1.4% in October.

Food prices, which had dipped 0.1% in October, were last month boosted by a 58.8% surge in wholesale prices of eggs. Prices for fresh fruits and melons also rose.

Energy costs were pulled down by a 4.1% decline in gasoline prices. There were also decreases in the prices of jet fuel and liquefied petroleum gas. Energy prices fell 6.7% in October.

In the 12 months through November, the PPI rose 0.9% after advancing 1.2% in October. Data on Tuesday showed consumer prices edged up in November amid stubbornly high rental costs.

Though inflation remains above the Fed’s 2% target, price increases are becoming less broad-based. Economists believe the central bank is done hiking rates this cycle, and financial markets are expecting a rate cut as soon as May.

Rate cut bets have been pushed back from March following last Friday’s stronger-than-expected employment report as well as November’s slightly warmer inflation readings.

Excluding the volatile food and energy components, goods prices rose 0.2% after being unchanged in October.

The cost of services was unchanged for a second straight month. Transportation and warehousing services were cheaper. But wholesale prices for hotel and motel rooms increased 4.0%. There were also increases in the costs of deposit services and healthcare. But portfolio management fees, furniture retailing and the cost of transporting freight by road fell.

Portfolio management fees, hotel and motel accommodation are some of the components that go into the calculation of the personal consumption expenditures price indexes, the inflation measures tracked by the Fed for its inflation target.

The narrower measure of PPI, which strips out food, energy and trade services components, edged up 0.1% last month after rising by the same margin in October. The so-called core PPI increased 2.5% on a year-on-year basis in November, the smallest gain since February 2021. The core PPI rose 2.8% in October.

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