"Inflation remains quite tame. Over the course of the next year, the core numbers will drift up a little bit as the economy remains healthy and unemployment keeps falling."
- Jim O'Sullivan, chief U.S. economist at High Frequency Economics Ltd.
Inflationary pressure in the world's largest economy is weak. This can be asserted following Friday's wholesale price data that showed PPI fell for a third straight month in November. A report from the Labor Department unveiled the producer-price index, which is designed to measure what companies pay for everything starting from lumber and up to light trucks, sank 0.1% from October, when it declined 0.2%. The core measure, which excludes volatile food and energy costs, nudged up 0.1% after a 0.2% gain in October. On a yearly basis, core PPI jumped 1.3%, decelerating from a 1.4% increase a month earlier.
Friday's data underscore how weak demand in the United States and globally is holding back underlying inflation. Producer prices can reflect the possible trend in consumer prices, since businesses are likely to charge higher prices for goods and serviced in order to offset their own costs. The latest figures also can be interpreted as an alarming sign for the Fed, as inflation remains far below the threshold of 2% even despite billions of dollars injected into the economy each month. Moreover, subdued inflation is weighing on the Fed, as they consider tapering its stimulus programme. While other indicators are pointing at the ongoing recovery, inflation may slow further in case the pace of monthly purchases is reduced.
© Dukascopy Bank SA