November 2017 Producer Price Index

Prices paid by producers and wholesalers rose in November according to the Bureau of Labor Statistics.  Their Producer Price Index (PPI) increased 0.4 percent in the penultimate month alone.  This rapid monthly move pushed the year-over-year trend to 3.1 percent, up from 2.8 percent in October.  Core-PPI (it excludes food and energy) followed a similar pattern as the monthly rate of change also reached 0.4 percent, edging the year-over-year tally up to 2.4 percent from 2.3 percent a month earlier.

All early stages of output for both goods and services rose as well.  Processed goods for intermediate demand jumped 0.5 percent in the period; energy led this increase (rising 1.7 percent), but food and all other categories moved higher also.  Unprocessed goods for intermediate demand jumped 3.2 percent; energy was at the helm of this leap as well(up 5.5 percent), but foodstuffs and feedstuffs were up 2.7 percent and nonfood materials less energy rose 0.8 percent.  Finally, services for intermediate demand gained 0.7 percent in November; prices for early stage output have increased 3.2 percent in the past twelve months.

Producer prices tend to be viewed of as an early indicator for consumer inflation.  As the costs of goods sold increase, retailers try to pass the added expenses on to consumers since they do not want it to squeeze their profits.  The year-over-year trend for this early look at inflation has been sloping higher and is now at its loftiest level in over twelve months.  If the upward trajectory continues, the trend could influence costs paid by American consumers in a more impactful way.  Of course, higher inflation will likely sway the Federal Reserve’s interest rate actions (perhaps hastening the pace or increasing the number of rate hikes), which will lead to consequences (either positive or negative) for the economy.