Producer Price Index (PPI) inflation for November 2023 was flat practically across the board. Goods, Services, Energy, and even several intermediate processing categories post 0% monthly gains or outright declines. Topline PPI inflation was flat at 0.0% for the month, translating to a +0.8% year-over-year increase. The Core PPI inflation result for November 2023, excluding volatile costs for food and energy producers, fell to 2.0%. While the Federal Reserve does not make its policy decision based upon PPI inflation, the persistence of a downward-trending two-handle on Core PPI price pressures relieves one potential risk to consumer price inflation heading into 2024. 

Prices in Final Demand for Goods producers was virtually unchanged in November 2023 versus October. This builds upon the prior month’s 1.4% monthly decline and demonstrates a lack of potential supply-side price pressure for consumers over the near term. Final Demand: Goods prices are now 1.4% below year-ago levels, resuming the deflationary path that had trended for much of the year through August, when higher oil prices began to make their way through to the broader economy. Relief in this category of producer price pressures is welcome as it feeds into many big-ticket items purchased by homeowners, and housing-related inflation is still a sticking point keeping the consumer price index from normalizing around the Fed’s average 2% objective. 

Inflation stemming from Final Demand for Services has now joined Goods-related inflation at a comfortable pace. Final Demand: Services PPI came in flat for the month (0.0%) and is now up only 2.1% versus one year ago. Service providers’ price pressures have been a concerning complement to strong discretionary spending by U.S. consumers throughout 2023. And while consumer spending is still fueling inflation even in service categories such as leisure & hospitality industries, the downward trend among service providers’ own costs suggests that if consumer demand cools, consumer price inflation should also then have a path to stability. 

Intermediate Demand inflation for Components for Manufacturing posted another monthly decline in November 2023, falling 0.4% for the month. This is the seventh month out of 11 for the year in which Intermediate Demand has declined. Components for Construction was up modestly at +0.2% (2.0% annualized) but has still managed to average less than a 2.0% pace (+1.8%) over the past six months. Pricing pressures for Intermediate Demand for Transportation & Warehousing Services also fell for the month in November 2023 (-0.2%). 

Stability in these intermediate demand categories suggest that all price influences upstream from the U.S. consumer have been tamed, and no step in the supply chain poses significant risks to inflation, from raw materials all the way through to the transportation and delivery of goods and services. A return to the Fed’s 2.0% target in consumer-facing inflation looks now to rely solely upon the U.S. consumer’s willingness to adjust their spending habits. Failure to do so, given the increasing reliance upon consumer debt to fuel spending, will keep inflation from moderating more rapidly and will keep the Fed’s “higher for longer” interest rate path intact.