US wholesale inflation slowed further in November to 7.4%

WASHINGTON (AP) — US wholesale prices rose 7.4% in November from a year earlier, a fifth straight slowdown and a hopeful sign that inflationary pressures across the economy continue to cool.

The latest year-on-year figure was down from 8% in October and a recent high of 11.7% in March. On a monthly basis, the government said on Friday that its producer price index, which measures costs before they reach consumers, rose 0.3% from October to November for the third straight month.

Still, a measure of “core” producer prices, which exclude volatile food and energy costs, accelerated, rising 0.4% from October to November. The underlying figure had risen just 0.1% from September to October. However, in the last 12 months, basic producer prices rose 6.2% in November, less than 6.7% in October.

The latest figures reflect a continued shift in inflation from goods to services. The cost of goods rose just 0.1% from October to November, and wholesale gas prices fell 6%. (Food prices were an exception: They rose 3.3% last month, buoyed by more expensive vegetables, eggs and chicken.)

By contrast, the prices of services rose more, by 0.4%, led mainly by more expensive financial services. However, the wholesale cost of airfares and hotel rooms fell, and overall prices for services have slowed in the past three months.

There are new signs that the US economy could be on the up. (CNN, POOL, BROOKINGS INSTITUTE)

“Headline inflation is moving in the right direction, albeit at a slow pace,” PNC Financial Services Group said in a research note. “The Federal Reserve’s monetary policy tightening plans will remain aggressive until clear and consistent signs of the disappearance of inflation are demonstrated.”

Rising prices continue to put pressure on Americans’ finances, particularly when it comes to food, rent, and services like haircuts, health care, and restaurant meals. However, several emerging trends have combined to slow inflation from the four-decade peak it reached over the summer. Gasoline prices have plunged after hitting $5 a gallon in June. Nationally, they averaged $3.33 a gallon on Thursday, according to AAA, just below the average of a year ago.

And the supply chain entanglements that caused chronic transportation delays and shortages of many products, from patio furniture to curtains, are unraveling. US ports have cleared the backlog of ships that, earlier this year, took weeks to unload. And the cost of shipping a cargo container from Asia has dropped dramatically to pre-pandemic levels.

As a result, the prices of durable goods, from used cars and furniture to appliances and certain electronics, are falling.

Friday’s producer price data captures inflation at an early stage of production and can often indicate where consumer prices are headed. Next week, the government will report its highest-profile inflation figure, the consumer price index. The most recent CPI report, from October, showed a moderation in inflation, with prices 7.7% higher than the previous year. While still high, that was the lowest year-over-year number since January.

Fed Chairman Jerome Powell, in a speech last week, pointed to falling commodity prices as an encouraging sign. Powell suggested that housing costs, including rent, which have been a major driver of inflation, should also start to decline next year.

The Fed chair also noted that the central bank will likely raise its benchmark interest rate by a smaller increment when it meets next week. Investors are expecting a half-point hike from the Fed, after four consecutive three-quarter-point hikes.

However, Powell noted that prices for services, which reflect the largest sector of the US economy, continue to rise at a historically rapid rate. Rapidly rising wages are a key driver of service inflation, she noted. This is because as wages rise, many companies pass on their higher labor costs to their customers through higher prices, which increases inflation.

Wages continue to rise rapidly and could continue to fuel higher inflation for most of the next year. In last week’s November jobs report, the government reported that the average hourly wage rose 5.1% from a year earlier, well above the pre-pandemic pace. Powell said wage increases closer to 3.5% would be needed to bring inflation back toward the Fed’s 2% annual target.