Announced this morning, the Producer Price Index, a measure of what companies pay for their input costs, grew 0.3% in November, more than expected, and has increased 7.4% on an annual basis, which compares to the revised 8.1% increase the previous month. The core rate, which excludes prices for food and energy, increased 0.4% in November, double what was expected, and grew 6.2% on an annual basis, which is also lower than the revised 6.8% increase the previous month.
Overall, producer prices were elevated in November and the core rate was double what was expected. However, annual figures were lower than the previous month given base effects. Prices for services drove most of the increase, up 0.4% in November, while goods grew 0.1%, a dynamic that has persisted in recent months. In addition, these figures suggest ongoing margin pressure for organizations, forcing some to possibly increase prices in order to maintain earnings growth. While labor market dynamics are resilient at present, many consumers may not be able to absorb higher prices especially if an economic slowdown materializes. This dynamic will be closely watched by the Federal Reserve as a determinant for the size and timing of scaling back the pace of their interest rate increases in the weeks ahead.
In all, the 10-year US Treasury yield is higher following the report and equity futures are lower as we head into the market open.
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