Rising Wholesale Prices Add To Uncertainty Over Fed Action

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What's Happening Today

This morning we got a first look at November's inflation figures and unfortunately, they didn't ease as much as expected. The Producer Price Index (PPI), or wholesale inflation, rose slightly more than expected by 0.3% last month from the month prior. The November PPI sits 7.4% higher compared to the same time last year but is lower than the year-over-year number for October that clocked 8.1%. The core rate, which excludes more volatile food and energy prices, was also 0.3% higher for the month and up 4.9% year-over-year, although slowing from a rate of 5.4% in October.

While today's PPI reading is not necessarily an indicator of what we can expect next week when the Consumer Price Index (CPI) is released, it does suggest that inflation isn't slowing nearly as quickly as economists anticipated, and that the Federal Reserve's rate hikes aren't making as much headway as we'd hope.

This could mean that the Fed could get more aggressive in its policy meeting next week and decide to hike rates by 75 basis points (bps), instead of a more moderate 50 bps. Remember, Fed Chairman Jerome Powell indicated in a November speech that the Fed could slow its pace of rate hikes as early as December. But with these numbers, it's hard to predict which way it'll move. The markets still believe, with a 77% likelihood, that the central bank will hand us a more moderate rate hike, but that prediction has dipped slightly from where it was just a few days ago.

What's more, rising prices for wholesalers could impact shoppers like you and me as stores pass on those higher costs to us. As a leading indicator, today's PPI reading could mean that we will continue to pay more for items in stores, which might change shopping habits—something that big retailers don't want us to do.

Stocks wavered between losses and gains after the inflation reading was released this morning, as investors remain nervous about the possibility of aggressive rate hikes that might tip the economy into a recession.

- Kristin

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Term of the Day

Leading Economic Indicator

Typically, investors and economists pay attention to leading economic indicators, because they can help predict or forecast economic growth, corporate earnings, and stock prices.

Some types of leading indicators include unemployment claims, consumer confidence, building permits, inventory changes, and stock prices.

Changes in these numbers can potentially signal what short-term, near-future changes are likely to occur in the broader economy.

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Off the Charts

This morning's preliminary reading of the University of Michigan's Consumer Sentiment Index for December shows sentiment rose 4% from November as expectations that business conditions will improve in the year ahead surged. However, it still remained near historic lows as concerns over rising prices continued to weigh on consumers, though they have eased.