Unexpected Rise in US Producer Prices Causes Increased Inflation Concerns

The inflation rate measured by producer prices in the USA rose more sharply in November than expected, casting a shadow on the prospect of disinflation in the economy. The producer price index recorded a rise of 3% compared to the previous year, representing the highest value since February 2023 and marking a significant increase from the upwardly revised 2.6% in October as well as the 2.6% forecasts from TradingEconomics. These official data, released on Thursday, follow the rise in the consumer price index inflation to 2.7% annually last month, in line with estimates. On a monthly basis, the PPI increased by 0.4%, surpassing both the previously revised upward 0.3% of the previous month and the forecasted 0.2%. Excluding volatile items such as food and energy, the core PPI rose by 3.4% annually, matching the upwardly revised 3.4% in October and exceeding expectations of 3.2%. This marks the fifth consecutive rise in underlying producer prices, with inflation reaching its highest level since June 2024. On a monthly basis, the core PPI increased by 0.2%, a slight decline from the 0.3% in October, aligning with projections. At the same time, jobless claims rose more than expected to 242,000 for the week ending December 7, exceeding the estimates of 220,000. Prior to the release of the PPI report, investors were almost fully expecting an interest rate cut at the next monetary policy meeting of the Federal Reserve. Although the robust PPI data will likely not stop the widely expected rate cut of 25 basis points, they might attract attention during the press conference by Fed Chair Jerome Powell and potentially lead to more cautious commentary. Policymakers aim to keep consumer prices close to the 2% target, but a stronger-than-expected rise in producer prices could eventually influence consumer prices if the trend continues. The US Dollar Index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF, rose by 0.1% following the report. Increases for the US dollar were further supported by an interest rate cut by the European Central Bank. The ECB lowered the rate by 25 basis points to 3%, as widely expected, pushing the euro-dollar exchange rate below the level of 1.05. Government bond yields remained stable after the PPI report, as the upward pressure from hotter inflation was offset by the downward pressure due to rising jobless claims. US stock futures went into the negative in pre-market trading in New York. Futures contracts for the S&P 500 fell by 0.4%, reflecting increased investor caution.