U.S. producer prices rise below expectations in November

U.S. producer prices came in below expectations in November. The headline producer prices index came in at 0 percent sequentially and 1.1 percent year-on-year. Excluding, food, energy, and trade, PPI came in at 0 percent month-on-month and 1.3 percent year-on-year.

“Following today's report, we have updated our PCE model and expect it at 0.13 percent m/m and 1.4 percent y/y for the November report. Excluding food and energy, we forecast PCE to have increased 0.08 percent m/m and 1.5 percent y/y”, noted Barclays in a research report.

Services PPI inflation was especially weak, although underlying momentum is expected to be better than implied by its -0.3 percent sequential reading. Two very volatile components drive much of the fall: trade margins and transportation and warehousing. Transportation costs for finished goods rose sharply in 2018, as a result of a solid increase in demand for trucking and a pronounced shortage of truck drivers. This downward trend has been worsened in recent months by the softness in passenger transportation costs, keeping overall transportation and warehousing inflation muted.

However, services PPI ex-trade and transportation was still slightly on the weak side, falling 0.1 percent. Core goods PPI inflation rose 0.3 percent sequentially and 0.2 percent year-on-year, showing some signs of stabilization after steadily trending lower since mid-2018. Stripping food and energy, it rose 0.2 percent sequentially and 0.5 percent year-on-year. Core goods PPI continues to be low.

“In our view, the November report is on the soft side once the effects of commodity components such as food and energy are excluded. The core components of PPI are treading water. While pipeline and consumer prices will likely continue to be supported by domestic demand, today's weakness in services PPI is a concern and suggests that risks of a significant overshoot in inflation from rising capacity utilization and pipeline price pressures are low at this point. In addition, low core goods inflation indicates that the effects of higher tariffs on pipeline inflation are likely being offset by the stronger dollar and weaker import prices”, added Barclays.