Continued cooling! US core PPI in November slowed down to 2%, exceeding expectations and reaching a new low in nearly 3 years.

Affected by the decline in energy prices, the cooling of US PPI exceeded expectations, indicating that inflationary pressures continue to weaken against the backdrop of Fed tightening.

On Wednesday, December 13th, according to data from the US Department of Labor, US PPI in November increased by 0.9% YoY, lower than the expected 1%, and further declined from October's 1.3%, reaching the lowest level since June this year; MoM PPI increased by 0%, also lower than the expected 0.2%, with the previous value being 0%.

Excluding the volatile food and energy sectors, core PPI in November increased by 2% YoY, lower than the expected 2.2%, and slowed down from October's 2.4%, reaching the lowest level since January 2021; MoM core PPI increased by 0%, consistent with expectations.

The cost of processed products, which reflects the early-stage prices in the production process, is still in a deflationary state.

After the release of the PPI data, S&P 500 index futures reached pre-market highs. Spot gold fluctuated slightly in the short term, currently trading at $1982 per ounce. The US dollar index declined by about 10 points in the short term, currently trading at 103.81.

The decline in energy prices is the main driver

The decline in energy prices has once again become the main reason for the slowdown in PPI, while food and services have seen a slight increase MoM.

Specifically, the final demand goods index remained flat in November after a 1.4% decline in October. Among them, the price of final demand food rose by 0.6%, the price of final demand goods (excluding food and energy) rose by 0.2%, offsetting the 1.2% decline in the final demand energy index.

Looking at specific items, egg prices rose by 58.8%, and the indices for fresh fruits and melons, natural gas, electricity, and carbon steel scrap also increased. In contrast, gasoline prices fell by 4.1%, and the indices for processed poultry, industrial chemicals, aviation fuel, and liquefied petroleum gas also declined. The final demand services index remained unchanged, with a slight increase of 0.1% in the final demand services prices excluding trade, transportation, and warehousing. In contrast, the trade services index and the transportation and warehousing services index decreased by 0.2% and 0.5% respectively.

Among them, the prices of accommodation services for travelers increased by 4.0%, while the retail of health, beauty, and eyewear products, as well as the wholesale of food and alcoholic beverages, and the retail of clothing, footwear, and accessories also saw growth. On the other hand, the retail profit margin for automobiles decreased by 5.1%, and the wholesale of chemicals and related products, the retail of furniture, and the trucking freight index also declined.

The Fed's interest rate hike ends, "a done deal"

As the Fed enters the "last mile" of fighting inflation, the continued cooling of inflation data may accelerate this "last mile".

On Thursday, December 14th, at 03:00 in the morning, the Fed will announce its last interest rate decision of the year. It is widely believed that this round of interest rate hikes has come to an end, and the Fed may hold steady in this week's monetary policy decision and start a significant rate cut next year.

Now the focus of debate on Wall Street has shifted to when the Fed will start cutting interest rates and how much the rate cut will be. Against the backdrop of a significant cooling of US inflation in recent months, the market is starting to bet that by the end of next year, the federal funds rate will be lowered to the range of 4%-4.25%, with a rate cut of 125 basis points.