(Add details, analyst comments, markets)
* Producer prices increase by 0.8% in November
* Producer prices soar by 9.6% over one year
* The basic PPI increases by 0.7%; accelerated by 6.9% over one year
By Lucia Mutikani
WASHINGTON, Dec.14 (Reuters) – U.S. producer prices rose more than expected in November as supply constraints persist, resulting in the biggest annual gain since the series revamped 11 years ago and supporting the idea that inflation could remain uncomfortably high for some time.
The Labor Department report released on Tuesday, which also showed strong growth in core output inflation, followed last Friday’s announcement that annual consumer prices had risen the most since 1982 in November. Soaring inflation complicates President Joe Biden’s economic agenda, including a $ 1.75 trillion social policy and climate bill stuck in Congress.
Along with a tightening labor market, mounting price pressures will likely see the Federal Reserve announce that it will accelerate the reduction of its massive bond purchases when officials end a two-day meeting on Wednesday and potentially start. to raise interest rates sooner than expected.
“Price metrics have been well above target for much longer than expected,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “This data supports the Fed’s move to faster cut that will likely precede faster policy tightening next year.”
The producer price index for final demand jumped 0.8% last month after advancing 0.6% in October. The widespread increase in the PPI was led by a 0.7% rise in services, which followed a 0.2% gain in October. The acceleration in services reflects a 2.9% jump in portfolio management prices.
There have also been increases in the prices of hotel and motel rooms, as well as air fares, freight and mail. But the prices of wholesale furniture and bundled wireline telecommunications services have fallen.
Wholesale goods prices rose 1.2% after increasing 1.3% in October. Prices for scrap metal and steel rose 10.7%. Wholesale gasoline and food prices have also increased. But diesel fuel prices have fallen, as have the cost of light trucks.
In the 12 months to November, the PPI climbed 9.6%. This is the largest gain since November 2010 and follows an 8.8% increase in October. Economists polled by Reuters predicted the PPI would rise 0.5% on a monthly basis and 9.2% year on year.
The government announced last Friday that the consumer price index had jumped 6.4% in the 12 months to November, the largest year-on-year increase since June 1982.
Billions of dollars in aid for the COVID-19 pandemic from governments around the world have fueled demand for goods, leaving supply chains overburdened. Normalization of economic activity has also boosted demand for services, with delivery of some hampered by labor shortages, pushing up prices.
Stocks on Wall Street were mostly down. The dollar was flat against a basket of currencies. US Treasury prices have fallen.
LIGHTS OF HOPE
There are, however, encouraging signs that supply bottlenecks may start to ease. A survey by the Institute for Supply Management this month showed “some indications of a slight improvement in workforce and supplier delivery” in November.
Crude oil prices fell from recent highs and approached $ 73 a barrel on Tuesday after the International Energy Agency said the Omicron coronavirus variant was set to slow the recovery in global demand. Shipping costs are also off of their recent highs.
“The pressures on the supply chain are expected to ease over the next few months as holiday buying stops and producers have more time to adjust capacity, but impacts on producer prices then on consumer prices will not be immediate, ”said Will Compernolle, senior economist at FHN Financial in New York City.
“In the meantime, annual variations in producer prices will remain high.”
Excluding the volatile components of food, energy and commercial services, producer prices jumped 0.7%. The core PPI gained 0.4% in October. In the 12 months to November, the core PPI jumped 6.9%, the largest increase since 12-month data was first calculated in August 2014, after advancing 6.3% in October.
The Fed is tracking the personal consumption expenditure (PCE) price index, excluding volatile food and energy components, for its flexible inflation target of 2%.
Portfolio management prices, hotel and motel accommodation, and airfare are included in the calculation of the base PCE price index. With that data and the CPI numbers in hand, economists predict that the core PCE price index rose by at least 0.4% in November. That would bring the year-over-year increase in the core PCE price index to around 4.6%, which would be the highest annual reading since 1989.
“While modal scenarios where inflation reverts to the 2% target over several years still make sense, the risks of staying above the target for longer continue to rise and are clearly on their side. highest level in at least 40 years, “said Andrew Hollenhorst, Head of the United States. economist at Citigroup in New York.
The core PCE price index accelerated 4.1% in the 12 months to October, the highest since January 1991. Data for November will be released next Thursday. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)