Producer Inflation Rises More Than Expected To 3% In November: All Eyes On The Fed's Interest Rate Call

The inflation measured on U.S. producer prices rose more sharply than anticipated in November, marking its second consecutive increase and casting a shadow over the broader outlook for disinflation in the economy.

In November, the producer price index increased by 3% year-over-year — the highest since February 2023 — marking a significant uptick from October’s upwardly revised 2.6% and economist forecasts of 2.6%, as tracked by TradingEconomics.

This official data, released on Thursday, follows a rise in the consumer price index inflation to 2.7% annually last month, aligning with estimates.

On a monthly basis, the PPI climbed 0.4%, exceeding both the previous month’s upwardly revised 0.3% and the forecasted figure of 0.2%.

Excluding volatile items such as food and energy, the core PPI rose by 3.4% annually, matching an upwardly revised 3.4% in October and above expectations of 3.2%. This marks the fifth consecutive increase 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 October’s 0.3%, meeting projections.

Simultaneously, jobless claims rose more than expected to 242,000 for the week ending Dec. 7, surpassing estimates of 220,000.

Producer Prices Are Rising: Why It Matters

Before the release of the PPI report, investors were nearly fully pricing in an interest rate cut at the Federal Reserve’s monetary policy meeting next week.

While the robust PPI data is unlikely to halt the widely expected 25-basis-point interest rate cut, it could draw attention during Fed Chair Jerome Powell's press conference, potentially prompting more cautious commentary.

Policymakers aim to maintain consumer prices near the 2% target, but a stronger-than-expected increase in producer input prices could eventually pass through to consumer prices if the trend continues.

Market Reactions

The U.S. Dollar Index (DXY), tracked through the Invesco DB USD Index Bullish Fund ETF UUP, rose 0.1% following the report.

Session gains for the greenback were further supported by an interest rate cut from the European Central Bank.

The ECB reduced its interest rate by 25 basis points to 3%, as widely anticipated. This decision drove the euro-dollar exchange rate below the 1.05 level.

Treasury yields remained steady after the PPI report, as the upward impact from hotter inflation was simultaneously counterbalanced by downward pressure from rising jobless claims.

U.S. equity futures turned negative in premarket trading in New York. Futures contracts for the S&P 500 fell 0.4%, reflecting heightened investor caution.

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