Producer price inflation stays in control for Nov. As it has since June

We got our latest update on INFLATION WATCH on Friday, and the financial media portrayed it as a not-great sign.

Wholesale prices rose more than expected in November as food prices surged, dampening hopes that inflation could be headed lower, the Labor Department reported Friday.

The producer price index, a measure of what companies get for their products in the pipeline, increased 0.3% for the month and 7.4% from a year ago, which was the slowest 12-month pace since May 2021. Economists surveyed by Dow Jones had been looking for a 0.2% gain.

Excluding food and energy, core PPI was up 0.4%, also against a 0.2% estimate. Core PPI was up 6.2% from a year ago, compared with 6.6% in October.

Not great on the topline. But when I looked at the full report, I didn't see much to be concerned about.

The media report of "food prices surging" in November (by 3.3% overall) was largely contained to three types of food.

Change in producer prices, November 2022
Fresh/dry vegetables +38.1%
Fresh eggs +26.0%
Beef + veal +3.6%

That helps explain why you might be seeing absurd egg and produce prices at the grocery store, especially since both of those types of products have had double-digit increases in producer prices in each of the last 3 months. But beef/veal producer prices are still down 3% compared to July, and other food products declined in November, including like chickens (down for 5 straight months), dairy products (down 4 of the last 5 months), and grains (down each of the last 2 months).

In addition, producer-level inflation has been tame since the middle of the year, with a TOTAL change of 0.5% since June, with no month with a core price increase above 0.3% since May, and year-over-year inflation at its lowest point in the last 12 months.

And since then, we've seen oil prices drop by nearly 10% in the first full week of December, and at their lowest levels for 2022. Traders are now discussing a lack of demand in 2023 as the concern for commodity prices instead of a lack of supply.

Which reiterates to me that the Federal Reserve needs to recognize that inflation has leveled out in the 2nd half of 2022. And when you combine that with the fact that interest-rate sensitive indicators like construction spending and housing starts have been faltering as 2022 ends, and they need to stop this tightening cycle after the Fed has another interest rate hike this week.

The PPI report is another example of why financial media needs to worry less about Wall Street "expectations" and more about what the actual data is telling us. Both in the current month, and since inflation peaked back in June.