Rising prices continue to squeeze businesses at least as hard as consumers, according to a new report suggesting persistent inflation could be slow to abate.
The Producer Price Index for “final demand”—a measure of the selling prices charged by domestic producers of goods and services—rose 0.8% in November compared to October, the Bureau of Labor Statistics reported Tuesday. That was well above the 0.5% increase economists had expected, according to a consensus poll cited by Wells Fargo Securities, and made for an unprecedented 9.6% year-over-year increase in prices. The 12-month jump was the biggest since the bureau started tracking yearly data in 2010.
The producer price index—which covers industries including agriculture, manufacturing, mining, and construction in addition to goods that consumers might buy—is not as directly relevant to shoppers as the more widely cited Consumer Price Index, which focuses on the prices that people pay in day-to-day life. But it is an early indicator that potentially shows where consumer prices could head in the coming months. Tuesday’s report was an indication that inflation is spreading even farther into the economy than it had before, Mahir Rasheed, U.S. economist for Oxford Economics, said, noting that producers were seeing price increases for services in addition to goods.
“I think it continues to be a story of COVID, and continues to be a story of supply chain disruptions,” Rasheed said. “It’s clear that expectations that economists had early on of the situation abating sooner than it has haven’t really come true.”
One potentially alarming subset of the report should be taken with a grain of salt, Rasheed added. Producer prices for finished consumer goods—that’s the stuff you buy in stores—logged a 16.5% year-over-year increase, the highest since December 1974. But that spike won’t necessarily make its way to consumers, because it only covers things made in the U.S.—and most consumer goods Americans buy these days come from overseas, Rasheed noted. Those items have seen somewhat smaller price hikes, which is one reason the latest increases in the widely watched Consumer Price Index, while still worrying, were well short of 1970s levels.
While the overall producer price figures offered little room for optimism on the inflation front, Rasheed said data from other recent reports suggests inflation might start to ease late this year or early next year. That relief is likely to come not only from supply issues untangling, but from a downtick in demand from consumers, who are no longer getting the pandemic relief payments, such as stimulus checks, that they received from the government earlier in 2021.
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