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Ahead of the Bell: Producer Prices

Inflation at the wholesale level probably posted a temporary jump in November, reflecting a spike in gasoline prices.
/ Source: The Associated Press

Inflation at the wholesale level probably posted a temporary jump in November, reflecting a spike in gasoline prices.

Economists surveyed by Thomson Reuters expect wholesale prices rose by 0.8 percent last month following a 0.3 percent increase in October. The Labor Department will release the report at 8:30 a.m. EST.

These analysts believe that core inflation at the wholesale level, which excludes energy and food, will show a smaller 0.2 percent rise in November after having dropped by 0.6 percent in October.

Economists with IHS Global Insight said they were looking for energy prices to show a big jump during the month. That spike in prices reflected rising crude oil prices. However, in December, gasoline prices have been headed lower as crude oil prices have retreated a bit.

The big drop in core inflation at the wholesale level in October was driven by a sharp decline in the price of new models of light trucks and sport utility vehicles. The rebound in November, economists believe, will reflect a rebound in light truck prices.

The Producer Price Index measures inflation pressures before they reach the consumer. Economists surveyed by Thomson Reuters are also expecting a slight jump in consumer prices for November, forecasting a rise of 0.4 percent following a 0.3 percent increase in October. The small acceleration in prices will reflect the jump in gasoline and other energy costs also expected in the wholesale report.

Core consumer prices, excluding food and gasoline, are expected to rise a slight 0.1 percent. The Labor Department is scheduled to release the Consumer Price Index on Wednesday.

The absence of inflation pressures has allowed the Federal Reserve to keep a key interest rate at a record low for the past year. Fed officials were scheduled to begin a two-day meeting on Tuesday, their last for the year, and the expectation was that they would again pledge to keep interest rates low for an extended period in an effort to help the economy recover from the longest and deepest recession in the post World War II period.

While unemployment dropped slightly in November to 10 percent, down from a 26-year high of 10.2 percent, analysts believe it will resume rising in coming months, acting as a further drag on economic growth. The high unemployment levels have kept a lid on prices as workers afraid of being laid off have moderated wage demands.

In a recent speech, Fed Chairman Ben Bernanke said that the economy continues to confront "formidable headwinds" as it struggles to mount a sustained recovery. Many economists believe the Fed will keep rates unchanged until the middle of next year when they believe the unemployment rate will finally begin to fall on a sustained basis.