Following a miss in retail sales (if slight beat in core spending), the final key economic update the Fed will look at before its "first rate hike in nine years" meeting next week is today's Producer Price Inflation report which rose 0.3%, above the expected unchanged print and even higher compared to October's -0.4% decline.
The report showed that while the decline in energy prices continued as expected, sliding 0.6% in the Final Demand Goods category, there was a surprising pickup in final demand services, which rebounded by 0.5% driven by Trade which rose 1.2% from the prior month, driven by an unexpected pickup in margins for apparel, jewelry, footwear, and accessories retailing.
However, while on a monthly basis the rebound was solid and matched the PPI growth seen in June, on a year over year basis, final demand continues to trend in negative territory, where it has been throughout 2015.
Here is where the bulk of the PPI service growth came from:
Over 40 percent of the November advance in prices for final demand services is attributable to a 6.2-percent increase in margins for apparel, jewelry, footwear, and accessories retailing. The indexes for machinery and equipment wholesaling, loan services (partial), fuels and lubricants retailing, portfolio management, and long-distance motor carrying also moved higher. Conversely, prices for securities brokerage, dealing, investment advice, and related services fell 3.9 percent. The indexes for food and alcohol retailing and for water transportation of freight also fell. (See table 4.)
We wonder just where the BLS is seeing apparel inflation in an environment where every single retailer is dumping prices and slashing margins just to make up for lost pricing in volume (aka the OPEC strategy), but we are happy to wait for the upcoming revisions.
As for goods:
Half of the November decrease in the index for final demand goods is attributable to prices for gasoline, which fell 1.3 percent. The indexes for residential natural gas, electric power, carbon steel scrap, and corn also moved lower. Conversely, prices for fresh fruits and melons jumped 11.6 percent. The indexes for eggs for fresh use, jet fuel, and pharmaceutical preparations also increased.
Excluding food, energy and trade, the index inched up 0.1 percent in November. For the 12 months ended in November, prices for final demand less foods, energy, and trade services advanced 0.3 percent.
Finally, one item that caught our attention: eggs, which in the past few months have soared to unprecedented levels.