US producer prices temper optimism over slowing inflation
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What can today’s data on producer prices in the world’s two biggest economies tell us about the trajectory for global inflation in the months ahead?
In the US, PPI cooled a little in November to 7.4 per cent from October’s 8.1 per cent, but the less than expected fall showed high inflation may be around a little longer than investors had hoped.
US stock futures fell sharply on the news but today’s data are not expected to deter the Federal Reserve from slowing down its programme of interest rate rises when it makes its next decision on Wednesday, shortly after the release of new consumer price index numbers.
Although the slowdown in China could muddy the outlook, there have been several signs in recent weeks that the logistical problems facing US business have been fading, helping reduce costs.
Freight rates have fallen, with rates for shipping goods from Asia to ports on the US west coast down 87 per cent in the past year, to a level just 7 per cent above the same period in 2019. Congestion has eased, with progress made on labour shortages. There have also been improvements in warehouse space that had left some stores short of goods during last year’s holiday season.
Meanwhile, US politicians last week intervened to stop a threatened freight rail strike, which business groups estimated could have cost the US economy $2bn per day.
Earlier on Friday, China reported producer prices fell for the second consecutive month, this time by 1.3 per cent, as Covid-19 lockdowns and other pressures dented activity. The trend was also seen in the recent PMI survey, which showed Chinese manufacturing shrinking faster than expected.
China also released CPI figures for November on Friday, showing the slowest pace of growth in eight months, down from 2.1 per cent in October to 1.6 per cent.
Although the speed of transition may not yet be clear, today’s data add to evidence in recent weeks that the global surge in inflation is faltering. As well as shipping rates falling, commodity prices and inflation expectations have begun to subside.
In Germany, factory gate prices fell 4.2 per cent in October compared with the previous month — the largest monthly drop since 1948. In the UK they have been slowing since the summer, with new data due next week.
Nearly all the G20 group of leading economies publishing October PPI data have reported a slower pace of annual growth than in the previous month, including Spain, Mexico, Portugal and Poland.
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