Thursday, April 24, 2025

AS SUPPLY BOTTLENECKS PERSIST: US producer prices soar

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WASHINGTON- US producer prices increased more than expected in November as supply constraints persisted, leading to the biggest annual gain since the series was revamped 11 years ago and supporting views that inflation could remain uncomfortably high for some time.

The report from the Labor Department on Tuesday, which also showed strong growth in underlying producer inflation, followed on the heels of news last Friday that annual consumer prices surged by the most since 1982 in November. Soaring inflation complicates President Joe Biden economic agenda, including a $1.75 trillion social policy and climate bill stuck in Congress.

Together with a tightening labor market, rising price pressures will likely see the Federal Reserve announcing that it will accelerate the tapering of its massive bond purchases when officials end a two-day meeting on Wednesday and potentially start raising interest rates sooner than previously expected.

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“Price metrics have been running well above target for much longer than anticipated,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “These data support the Fed’s switch to a faster taper that will likely precede a quicker tightening of policy next year.”

The producer price index for final demand jumped 0.8 percent last month after advancing 0.6 percent in October. The broad-based increase in the PPI was led by a 0.7 percent rise in services, which followed a 0.2 percent gain in October. The acceleration in services reflected a 2.9 percent jump in prices for portfolio management.

There were also increases in prices for hotel and motel accommodation as well as airline fares and transportation of freight and mail. But prices for wholesale furnishings and bundled wired telecommunications access services fell.

Wholesale goods prices rose 1.2 percent after increasing 1.3 percent in October. Prices for iron and steel scrap rose 10.7 percent. There were also increases in wholesale gasoline and food prices. But prices for diesel fuel fell as did the cost of light motor trucks.

In the 12 months through November, the PPI shot up 9.6 percent. That was the largest gain since November 2010 and followed an 8.8 percent increase in October. Economists polled by Reuters had forecast the PPI climbing 0.5 percent on a monthly basis and surging 9.2 percent year-on-year.

The government reported last Friday that the consumer price index surged 6.4 percent in the 12 months through November, the biggest year-on-year rise since June 1982.

Trillions of dollars in COVID-19 pandemic relief from governments across the globe fueled demand for goods, leaving supply chains overstretched. The normalization of economic activity has also juiced demand for services, with the delivery of some being hampered by worker shortages, driving up prices.

Stocks on Wall Street were mostly lower. The dollar was flat against a basket of currencies. US Treasury prices fell.

There are, however, some hopeful signs that the supply bottlenecks could be starting to ease. An Institute for Supply Management survey this month showed “some indications of slight labor and supplier delivery improvement” in November.

Crude oil prices have eased off recent highs and were approaching $73 a barrel on Tuesday after the International Energy Agency said that the Omicron coronavirus variant was set to dent the global demand recovery. Shipping costs are also off their recent peaks.

“Supply chain pressures should ease in the next few months as holiday shopping lets up and producers have more time to adjust capacity, but the impacts on producer prices and then to consumer prices will not be immediate,” said Will Compernolle, a senior economist at FHN Financial in New York.

“In the meantime, year-on-year changes in producer prices will remain high.” – Reuters

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