The Producer Price Index due on Friday could help shape inflation expectations after data earlier this week showed consumer prices rose more than expected last month. Investors are watching the release closely because it is the last major inflation reading before the Federal Reserve meeting on December 8 and 9.
Why it matters
The October consumer price report set the tone. Prices rose 0.4 percent in the month against forecasts of 0.3 percent, food prices rose 0.5 percent after being unchanged in September, and the 10 year Treasury yield climbed above 5 percent. The market now treats a December rate hike as all but certain.
The debate is no longer whether the Fed will hike, but by how much. A 25 basis point hike is fully priced, with a small chance of 50, after Fed Governor Christopher Waller said a core reading of 0.3 percent would prompt him to consider a half point move. The producer price data will feed directly into that debate.
What happens next
Initial jobless claims and existing home sales are also due this week, and together they will give a fuller picture of an economy that is still growing but with prices rising faster than the Fed wants. The claims data will show whether the labour market is cooling, and the home sales will show whether higher rates are biting.
For now, the market is positioned for a hike and waiting on the data to confirm the size. If the producer prices come in hot, the case for a bigger move strengthens. If they cool, the Fed has room to move more slowly. Friday will decide which way the argument goes.
The October consumer price report set the tone for the week. Prices rose 0.4 percent in the month against forecasts of 0.3 percent, food prices rose 0.5 percent after being unchanged in September, energy rose 0.7 percent and gasoline rose 1.0 percent. The Labor Department could not publish a year over year figure because there was no October 2025 report during the government shutdown, but the Cleveland Fed estimated the annual rate at 3.8 percent, well above the Fed 2 percent target. Fed Governor Christopher Waller had said a core reading of 0.3 percent would prompt him to consider a half point hike in December.
