November PPI

The Department of Labor’s November index of producer prices rose a stunning 1.8% at the headline level, almost double consensus expectations.  This powers the year-over-year rate of increase to a worrisome 2.7% gain from October’s annualized 1.9% drop.  A spike in energy costs, primarily gasoline, gets the most blame for the November increase although higher food prices contributed a bit as well.  Still, when we subtract food and energy to calculate the core PPI, we see it rose 0.5% for the month, also well ahead of all projections.  This is especially troubling given the huge 0.6% surge the core experienced in October.  Annualized, it is now climbing at a 1.2% pace, not alarming in itself, but we must also pay attention to the ongoing rate of change.  One component applying upward pressure to the core for the month can be found in rising light truck prices which may just be rebounding from an even sharper fall seen in October.  Higher tobacco prices also assisted in the upward push on prices.  While we must remain vigilant concerning any nascent signs of building inflationary pressures, this month’s report by itself provides insufficient evidence to justify such an outlook.  We’ll keep an eye out though, and let you know if and when we see it, probably right after adjusting your portfolio to take advantage of the situation as it develops.