Gold rises after soft wholesale price data

A report from the US Labor Department today showed declines in prices at the producer level, suggesting the Fed has room to maintain stimulus at its upcoming policy meeting.

The US Bureau of Labor Statistics (BLS) today released its Producer Price Index (PPI) for November. The PPI monitors supply-side prices and this month’s report shows prices paid by wholesalers fell overall in November, with the index dropping 0.1% for the month.

The drops at the headline level were driven by lower energy costs, with gasoline prices continuing to slide after a big drop in October. At the core level, PPI increased 0.1% for the month, with computers and cars providing the biggest drag and light motor trucks leading the price increases.

The change for the year in November was +0.7% at the headline level, which is a very soft level of inflation; the monthly change is the third consecutive decline in headline PPI.

Price data at the consumer level is released next Tuesday, the day on which the December FOMC meeting begins, and with yesterday’s import price report showing declines and today’s soft producer prices it’s likely that the CPI is going to tell a similar story.

In such a low inflation environment, the FOMC will certainly have a justification should it choose to defer tapering until next year.

This extra room to manoeuvre for the Fed has benefitted the price of gold today; by mid-afternoon in New York, the spot gold price was up 0.85% at $1236.0 per troy ounce.

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