The PPI in November rose by .3% headline and .4% core with the former one tenth more than expected and the latter double the estimate. Also, October was revised up by one tenth for each. Versus last year, headline PPI was up 7.4% y/o/y and by 6.2% ex food and energy. They are though both off the October prints of up 8% and 6.7% respectively.
With respect to the goods side, a 38% jump in fresh and dry vegetables led the way, along with some other food products like chicken and meats. Energy prices fell 3.3% m/o/m but are still up 16.2% y/o/y.
With services, the BLS said “About 1/3 of the November rise in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which jumped 11.3%.” Anything auto saw prices lower. Maybe the November lift in markets was a factor.
Inflation in the pipeline as measured by processed and unprocessed goods saw continued moderation with declines both headline and core.
Bottom line, and I’ll likely repeat this on Tuesday, we saw the goods prices spike over the past few years and now the decline helped by a lot of clearing out of excessive inventories of many goods products, along with the drop in commodity prices. But, I’m amazed how many think that we’re just going to quickly go back to a pre covid environment with inflation and I just don’t see it, especially if one listens directly to what companies are saying. I still believe that after the come down in inflation, we’re going to have to get used to a 3-4% inflation trend rather than 1-2%. Can we see some months late next year of 1-2% inflation y/o/y? Yes, but a lot of that will also be due to the tough comps. It’s what comes after that which will matter.
On the services side, there was NEVER such thing as transitory inflation as it’s been forever persistent and will continue to be. Yes, rents will continue to slow but only by so much when home prices are as unaffordable as they are. Medical care inflation will always be sticky as many other services we use. Lastly, wage growth for most people that work in services, well above pre Covid trends, will also create an inflation floor above what many were used to also pre Covid.
With the sharp drop in inflation breakevens, TIPS look very attractive here I believe, particularly 5 yrs. Breakevens are down in response while nominal Treasury yields are higher.
Headline PPI
Core PPI