U.S. producer prices rise strongly in November, likely to gradually firm up

U.S. producer prices grew strongly in November, underpinned by a rise in core as well as non-core price components. The headline producer price index rose 0.4 percent, as compared with consensus expectations of a rise of 0.1 percent. PPI, excluding food, energy and trade, was also up, rising 0.2 percent sequentially in November. The goods component of PPI rose 0.2 percent, recording positive growth for the third straight month, as strong growth in the food component counter the modest fall in energy prices.

Stripping food and energy, prices of goods rose 0.2 percent. Services PPI recovered solidly in November, rising 0.5 percent in sequential terms. The rebound was driven by a solid rise in trade services that grew 1.3 percent, while transportation and other services recorded modes rise. The year-on-year change in PPI had stabilized around neutral levels since the beginning of 2016 and has picked up momentum considerably since the end of the summer. Final demand, excluding food, energy and trade services rose 1.8 percent year-on-year.

Since 2011, the BLS has recorded PPI personal consumption, which is a good leading indicator for CPI inflation. PPI personal consumption was up 0.4 percent in sequential terms, taking the year-on-year growth to 1.1 percent. Stripping food and energy, PPI personal consumption was up 0.5 percent sequentially and 1.5 percent year-on-year. In all, this report provides additional evidence of continued progress toward stronger pipeline pressures.

“As the drag from volatile components wanes, we expect PPI to gradually firm up and feed through to consumer prices”, said Barclays in a research report.