Prices at the wholesale level rose 0.4% in November and 3.1% over the past year. It was the biggest annual jump in nearly six years and reflected a big spike in the price of gasoline and other energy products.
Last month’s increase in the producer price index, which measures inflation pressures before they reach the consumer, marked the third straight month that wholesale prices have risen by 0.4%, the Labor Department reports Tuesday. The 3.1% rise from November 2016 was the biggest 12-month gain since a matching 3.1% increase for the 12 months ending in January 2012.
“The personal consumption sub-index revealed a heady 0.6% on the month, leaving it 3% higher than a year ago,” writes Royce Mendes of CIBC Economics in a report. “That’s faster than CPI, but of course does not capture the disinflationary impact of imports, as well as the squeeze on retail margins coming from online sales. This series doesn’t tend to garner any market reaction, but does show a hint of inflation pressures ahead.”
Core inflation, which excludes volatile energy and food prices, rose 0.3% in November and 2.4% for the past 12 months, a more benign reading on inflation.
The November increase reflected a 4.6% increase in energy costs, the biggest since May 15. That increase was paced by a 15.8% surge in gasoline costs, the sharpest one-month gain in gasoline prices since an 18.6% jump in August 2009.
Food costs rose a modest 0.3% after a bigger 0.5% gain in October.
The government will report on consumer prices Wednesday and economists are looking for a 0.4% November increase due to rising energy prices at the retail and wholesale levels.
The Federal Reserve seeks to manage interest rates to keep inflation rising at a moderate 2% but over the past six years, it has failed to reach that goal.
However, the central bank is expected to boost a key interest rate for a third time this year at its meeting this week. Fed officials believe that, while inflation had been falling farther from its 2% goal in 2017, that situation is about to change, as a tighter labour market fuels inflation. Unemployment in November was 4.1%, the lowest level in nearly 17 years.