By Lucia Mutikani
WASHINGTON (Reuters) -U.S. producer prices increased by the most in five months in November, but a moderation in the costs of services such as portfolio management fees and airline fares offered hope that the disinflationary trend remains in place.
A surge in the price of eggs amid an avian flu outbreak accounted for much of the bigger-than-expected rise in producer inflation last month. Other details of the report from the Labor Department on Thursday were, however, mostly favorable, prompting economists to lower their estimates for the personal consumption expenditures (PCE) price measures tracked by the Federal Reserve for its 2% inflation target.
The report, together with other data showing more people were collecting unemployment checks at the end of November relative to the beginning of the year as demand for labor cools, cemented investor expectations that the U.S. central bank would deliver a third interest rate cut next week.
"We see little evidence of pipeline price pressure in the producer price data," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The foundations are in place for core PCE inflation to fall further next year, though the new administration will snatch defeat from the jaws of victory if they press ahead with higher import tariffs and deportations."
The producer price index for final demand jumped 0.4% last month, the largest gain since June, after an upwardly revised 0.3% increase in October, the Labor Department's Bureau of Labor Statistics said.
Economists polled by Reuters had forecast the PPI gaining 0.2% following a previously reported 0.2% rise in October.
In the 12 months through November, the PPI shot up 3.0% after increasing 2.6% in October. The government reported on Wednesday that consumer prices increased by the most in seven months in November, while a measure of underlying price pressures continued to run warmer over the past four months.
Wholesale goods prices surged 0.7%, accounting for nearly 60% of the broad-based monthly rise in the PPI, after edging up 0.1% in October. Food prices soared 3.1%, making up 80% of the increase in goods prices. Wholesale egg prices vaulted 54.6%, the most since June, after declining 20.6% in October.
Prices for fresh and dry vegetables, fresh fruits and melons also rose. Wholesale energy prices gained 0.2%. Excluding the volatile food and energy components, goods prices rose 0.2%, advancing by the same margin for five straight months.
SERVICES PRICES TAMER
Services prices rose 0.2% after climbing 0.3% in October. Portfolio management fees fell 0.6% after increasing 3.1% in October. Airline passenger fares decreased 2.1% after increasing 2.6% in the prior month. The cost of hotel and motel rooms dropped 3.1% after rising 2.8% in October.
Prices for physician and hospital outpatient care were unchanged, but the cost of hospital inpatient care rose 0.2%.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among components that go into the calculation of the personal consumption expenditures (PCE) price index, excluding food and energy.
Following the PPI data, economists lowered their estimates for so-called core PCE inflation to 0.13% from 0.2% on Wednesday after the CPI report. The core PCE inflation is one of the measures tracked by the U.S. central bank for monetary policy.
U.S. stocks opened flat. The dollar gained against a basket of currencies. U.S. Treasury yields rose.
Financial markets have almost fully priced in a quarter-percentage-point rate cut at the Fed's Dec. 17-18 policy meeting, according to CME Group's (NASDAQ:CME) FedWatch Tool.
The Fed kicked off its monetary policy easing cycle in September. Its benchmark overnight interest rate is now in the 4.50%-4.75% range, having been hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
A separate report from the Labor Department showed initial claims for state unemployment benefits increased 17,000 to a seasonally adjusted 242,000 for the week ended Dec. 7. Economists had forecast 220,000 claims for the latest week.
Last week's jump in claims likely reflected volatility after the Thanksgiving holiday and probably does not mark an abrupt shift in labor market conditions.
Claims are likely to remain choppy in the weeks ahead, which could make it difficult to get a clear read of the labor market. Through the volatility, however, the labor market is slowing.
Though job growth accelerated in November after being severely constrained by strikes and hurricanes in October, the unemployment rate ticked up to 4.2% after holding at 4.1% for two consecutive months. A stable labor market is critical to keeping the economic expansion on track.
Historically low layoffs account for much of the labor market stability, and have driven consumer spending.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 15,000 to a seasonally adjusted 1.886 million during the week ending Nov. 30, the claims report showed.
The elevated so-called continued claims are a sign that some laid-off people are experiencing longer bouts of unemployment.
The median duration of unemployment spells rose to the highest level in nearly three years in November.