What’s driving the increase?
November’s PPI increase is mainly driven by goods, with the final goods demand index rising 0.7%, the highest monthly increase since February. Notably, food prices rose by 3.1%, led by a staggering 54.6% spike in chicken egg prices. Other contributions included fresh and dry vegetables, fresh fruit and processed poultry. In contrast, the prices of diesel fuel and organic chemicals showed a decline.
Final demand services also increased by 0.2%, thanks to a 0.8% increase in trading services margins. Specific gains were made in the wholesale trade of machinery and vehicles, the stock brokerage business and the retail sale of motor fuels and food products. Conversely, prices for airline passenger services and room rentals fell.
How are labor market statistics developing?
The labor market showed signs of weakening, with initial unemployment claims rising to 242,000 in the week ending December 7, above the forecast 221,000. This represents an increase of 17,000 from the previous week’s revised level. The four-week moving average, a more stable measure, also rose to 224,250, the highest level since late November 2021. Insured unemployment rose to 1.886 million, while the four-week average rose to 1.888 million.
What are the market prospects?
Stronger-than-expected PPI data and rising unemployment claims create a mixed market outlook. Inflationary pressures could push the Federal Reserve to maintain its restrictive monetary policy, which could weigh on stocks and bonds. However, the weakening labor market could moderate the Fed’s tightening path.
In the short term, traders should anticipate cautious market moves with potential volatility. The inflation-driven PPI data is bearish for the stock and bond markets, while a weaker labor market could support a neutral to bullish view for safe assets like gold.