Producer Prices Rise

A sharp rebound for service prices lifted the producer price-final demand headline 0.3 percent in November which is 3 tenths above the Econoday consensus and 2 tenths above the high estimate. The core rate (less food & energy) also rose 0.3 percent which is 2 tenths above expectations. Services, following two prior months of contraction, rose 0.5 percent in a gain that should confirm confidence that domestic-centered strength in the services industry will continue to drive the economy. But when excluding services, along with food and energy, wholesale prices rose only 0.1 percent.

Year-on-year readings don't look alarming at all with total prices at minus 1.1 percent, which is however 5 tenths better than October's minus 1.6 percent. The core rate, again driven by services, popped up 4 tenths to plus 0.5 percent. Service prices are also up 0.5 percent on the year. When excluding services along with food and energy, year-on-year wholesale sales are up 0.3 percent which is 1 tenth below October.

Other readings of note include a 0.3 percent decline for export prices, where the year-on-year rate is minus 3.9 percent. Energy prices fell another 0.6 percent in the month for a year-on-year decline of 19.0 percent. Though down 3 tenths in the month, construction prices, as have other indications on the sector, have been showing life, up 2.1 percent which just about leads the report.

Rates are definitely subdued but because of services, this report is on the high side especially for inflation hawks who can argue at next week's FOMC that deflationary pressures may in fact be starting to ease, at least to a degree.

Recent History Of This Indicator:
Service prices proved an unlikely source of deflationary pressure in the producer price report for October, falling for a second month in a row. Both energy prices and food prices fell with both finished goods and export prices also down. For November, forecasters are calling for no change in the producer prices - final demand headline and a 0.1 percent gain for the core rate. Year-on-year rates have been falling deeper into negative territory, to minus 1.6 percent for the headline reading in October.