U.S. Producer Prices Post the Biggest Annual Gain Since 2010, Fanning Inflation

(Bloomberg) -- Prices paid to U.S. producers posted a record annual increase of almost 10% in November, a surge that will sustain a pipeline of inflationary pressures well into 2022.

The producer price index for final demand increased 9.6% from a year earlier and 0.8% from the prior month, Labor Department data showed Tuesday. Both advances topped economists’ forecasts.  

The annual advance was the largest in figures back to 2010. Stocks retreated as the data reinforced expectations that Federal Reserve policy makers will tighten monetary policy next year.

Excluding the volatile food and energy components, the so-called core PPI increased 0.7% and was up by a record 7.7% from a year ago. 

Prices of goods and services both advanced last month. The report captures changes in prices paid to producers as well as margins received by wholesalers and retailers.

Materials costs have risen rapidly this year amid transportation bottlenecks, robust demand, and labor constraints. Many businesses have successfully passed those added costs on to customers through higher prices, and the latest report suggests additional consumer price increases in the coming months.

Consumer Inflation

Data out last week showed the consumer price index rose 6.8% last month from a year ago, the fastest annual pace in nearly 40 years. While first concentrated in a handful of categories associated with the economy’s reopening, inflation has broadened out. 

Read more: Consumer Prices in U.S. Climb at Fastest Annual Rate Since 1982

The larger-than-expected, sustained increase in inflation has put pressure on policy makers to act. The Fed, which will wrap up its final meeting of the year Wednesday, is anticipated to accelerate the wind down of its bond buying program, an action that would allow the central bank to begin increasing interest rates next year.

The persistence of inflation in recent months has proven to be a major political headache for President Joe Biden, who’s trying to salvage his roughly $2 trillion tax and spending plan amid concerns from a key senator, West Virginia’s Joe Manchin, that the package will spur even more price increases.

Producer prices excluding food, energy, and trade services -- a measure often preferred by economists because it strips out the most volatile components -- rose 0.7% from the prior month. Compared with a year earlier, the gauge jumped a record 6.9%.

Goods prices increased 1.2% in November from a month earlier, reflecting broad advances that included iron and steel scrap, gasoline, and fruits and vegetables.

Services costs rose 0.7%, in part reflecting a jump in prices for investment portfolio management.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, rose 1.5% from a month earlier. Compared with a year earlier, the measure jumped 26.5% -- the largest since 1974.

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