Prices Paid to U.S. Businesses Were Flat In November Thanks To Falling Energy Prices

Prices paid for goods and services to U.S. producers were unchanged in November compared with October, the Department of Labor said.

The producer price index for final demand, which is the Labor Department’s longest-running inflation gauge but less closely followed than the consumer price index, was flat for the month after falling 0.5 percent in October. “Final demand” refers to goods and services sold for personal consumption, capital investment, government use, and export.

Compared with a year ago, the producer price index is up 0.9 percent, below the 1.3 percent 12-month increase recorded in October.

The decline in energy prices, particularly gasoline prices, were a big driver of disinflation. These fell 1.2 percent on a monthly basis. Food prices rose 0.6 percent. Excluding food and energy prices, final demand PPI rose 0.2 percent. So-called “core core” prices—a metric that excludes food, energy, and the trade services gauge of wholesale and retain markups—rose 0.1 percent for the second consecutive month.

The index, known as PPI, it comprised of prices of goods and services paid to U.S. businesses. The better-known consumer price index tracks what consumers pay for goods and services. The PPI’s basket of prices includes exports and employer-paid healthcare costs,  which are excluded by CPI because they are not paid by consumers. PPI, however, excludes import prices because those are not paid to U.S. producers.

The PPI for final demand is frequently referred to as a “wholesale price index,” although that has not been its official name for decades. The primary index, known as PPI for final demand, does not track wholesale prices or prices paid to or by wholesalers. Instead, it tracks the prices of goods and services sold for personal consumption, capital investment, government use, or export. Even when the index was officially called the wholesale price index this was a misnomer.

On Tuesday, the Labor Department said the consumer price index indicated an acceleration of monthly price gains in November. The uptick in the monthly figure for PPI, from a negative October reading indicating deflation to zero in November, confirms the rise in inflationary pressures.

Both reports showed the year-over-year figures falling from the prior month. While inflation is still running faster than the two percent annual pace the Federal Reserve sees as sustainable for a healthy economy, it has fallen from the multi-decade highs hit last summer. The decline has encouraged the Federal Reserve in the idea that financial conditions are likely tight enough to keep putting downward pressure on inflation despite very low employment and stronger-than-expected growth this year.

The CPI and PPI reports in recent month have been interpreted as supporting the idea that the Fed can continue to hold off on raising rates and could begin to cut rates earlier next year than previously thought. The Fed last raised rates in July, when it took its benchmark federal funds rate up to a range of 5.25 percent to 5.50.

The index for goods was flat for the month, a sharp reversal from the 1.4 percent decline in the previous month. A 1.2 percent decline in energy prices was more than offset by increases in food prices and other goods. The services index was flat for a second consecutive month. The gauge of mark-ups known as trade services—which measures the difference paid for goods and services by retailers and wholesalers and what their customers pay at the cash register— declined in November while other services prices increased.

The Labor Department tracks prices further out on the chain of production through its index of PPI for intermediate demand, which measures prices paid for products that are sold to businesses as inputs for final demand goods and services. The index for processed goods for intermediate demand was unchanged in November and the index for unprocessed goods fell 1.4 percent. The index for services for intermediate demand rose 0.2 percent.