Producer prices fell sharply in November as energy prices plunged for the fourth consecutive month, the Labor Department reported Friday.
The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, fell steeper than expected to 2.2%. Economists had pegged a predictive 2.0% rise. The index registered its biggest monthly decline ever in October, falling a record 2.8%.
Plummeting energy prices again led the way in dragging prices down. The energy index fell 11.2% after a 12.8% drop in the previous month which set a 22-year record. Crude goods declined 12.5% following a 18.6% drop in October.
The consecutive declines further highlights free-falling crude-oil prices, which closed Thursday in New York at $47.98 a barrel — a far distance from its record highs near $147 per barrel in July when inflation peaked.
"The immediate problem now is recession, not inflation," Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, was quoted at Bloomberg. "We’re seeing commodity prices continue to collapse."
The core PPI, which strips out volatile food and energy prices, rose 0.1%. The increase was in line with most forecasts and follows October’s 0.4% increase.
"Core PPI is a little bit of a surprise, but it’s still pointing towards a deflationary environment, the likes of which we haven’t seen in ages," said Peter Kenny, managing director at Knight Equity Management in Jersey City, New Jersey.
Some economists are becoming more concerned with the potential for deflation or continual falling prices, which is essentially opposite of inflation. While barometers have not reached deflation levels, should prices continue to drop and reach below the cost it takes to produce them, production cuts, payroll reductions and resulting rising unemployment can follow.
The Labor Department’s Consumer Price Index for November is scheduled for release Tuesday at 8:30 AM ET. Economists forecast the report to show a record 1.4% drop in consumer prices.
The Federal Reserve will also meet next week. The prospect of another cut in the key funds rate is greater with reduced pressures of inflation.