Inflation, as measured by producer wholesale prices, slowed to 7.4% for the year ending in November, according to a report Friday from the Bureau of Labor Statistics.
That year-over-year inflation rate was down from 8.1% the month before, but it was a bit higher than what forecasters expected.
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Looking at the past several months, it appears as though inflation (as measured by the producer price index) peaked and is on its way down, which is good news for President Joe Biden, whose approval has been undercut by soaring costs for households. Annual wholesale inflation reached its zenith in March, clocking in at 11.7%, but it has now been in retreat for the past few months. Trends in producer prices eventually trickle down to households.
“Overall, producer prices are off their peaks and are decelerating,” said Rubeela Farooqi, the chief U.S. economist for High Frequency Economics. “But annual rates of change remain elevated.”
Friday’s report comes ahead of the even more closely watched consumer price index report. The CPI is seen by many to be the key barometer of headline inflation in the United States, and November’s reading will be the last one before the new year.
The Federal Reserve has been raising interest rates to tame inflation, but the trade-off is that rising interest rates slow demand and can result in a recession.
Last month, the central bank conducted another huge rate increase of three-quarters of a percentage point (or 75 basis points). It was the fourth such increase in just five months — the largest set of increases in four decades.
Fed Chairman Jerome Powell has made it clear that the Fed won’t let up with tightening until inflation starts returning to its preferred 2% level, although recent comments indicate that the pace of the tightening will begin to slow.
“The full effects of our rapid tightening so far are yet to be felt,” Powell said during a speech at the Brookings Institution. “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.
“The time for moderating the pace of rate increases may come as soon as the December meeting,” he added.
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Yet, even despite the slowing, it has been appearing ever more likely that the economy will tumble into a recession at some point next year.
In a recent analysis, PNC chief economist Gus Faucher said that PNC’s baseline forecast for next year features a “mild” recession, with the unemployment rate climbing to about 5.5% by early 2024. Minus the pandemic, that would mark the highest unemployment rate in more than five years.
