PPI Flat Month Over Month, +2.0% Year Over Year
November Producer Price Index (PPI) results are out this morning, further demonstrating how far levels of inflation have come down this year. Headline PPI month over month was flat — 0.0%, down from the +0.1% expected and up from the anomalous -0.5% the previous month. Stripping out volatile food and energy prices, we also wind up at 0.0% — flat with the downward revision for October levels. Ex-food, energy and trade, +0.1% is the number, which is in-line with expectations.
That said, month-over-month inflation reads often do have near-term issues that may make things hazy. Year over year, headline CPI came in at +0.9%, 10 basis points (bps) lower than expected and 40 bps from last month’s +1.3%, as well as the lowest print since January’s +0.3%. Core year over year reached +2.0% — the exact optimum level of inflation the Fed seeks — and 20 bps below estimates. This is also 40 bps under the downwardly revised +2.4% reported for October. Ex-food, energy and trade, we get +2.5% — the lowest print since February of 2021.
Thus, not only are we seeing PPI numbers continue to move in the preferred direction for the Fed, we’re already back to pre-Covid levels. We’re now seven straight months sub-3% on core PPI year over year, and we should remember that this data feeds into the Fed’s preferred economic metric, Personal Consumption Expenditures (PCE). (The next PCE report is expected Friday, December 22.) These figures have, in fact, come down precipitously, from +9.6% in April of 2022 and +5.7% in January of this year.
All of this is to say the Fed is now even less likely to move on interest rates this afternoon at 1:00pm ET. In fact, the now dis-inflationary reads on PPI wholesale pricing may actually wring a few words about potential interest rate cuts next year. There was some idea that perhaps Fed Chair Jay Powell was going to forego any sort of discussion about cutting rates, but the fact of the matter is, PPI numbers this morning are really helping the “soft landing” scenario come into focus.
Pre-market futures are up again, but not more so than they were prior to the PPI print. This would indicate that what Powell has to say about the future of interest rates is of higher value to market participants than today’s PPI — or even yesterday’s decent Consumer Price Index (CPI) figures. Regardless, however — and whether or not the Fed wishes to declare victory over inflation — PPI looks to have been the first economic metric to have reached the Promised Land.
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