Market reaction to biggest jump

US producer price growth data for November confirmed the problem of rising inflation. Stock indices fell for the second consecutive day this week ahead of the Fed meeting. Economists are giving their forecasts for the coming months.

The Bureau of Labour Statistics reported that the US producer price index (PPI) rose 9.6% in November from a year earlier, higher than economists' forecasts of 9.2% and the 8.8% value in October. The statistics show that this is the biggest jump since November 2010.

The report follows Friday's release of consumer price index data for November, which showed an increase to a record pace in 39 years.

Analysts cited rising energy prices in November as the reason for the record inflation, even as prices of crude oil, transport and storage services as well as industrial chemicals, scrap ferrous metals and foodstuffs fell.

Against a backdrop of increased demand in the run-up to the Christmas holidays, supply chain problems persisted in November, remaining a key driver of inflation. Meanwhile, the provision of some services was hampered by a shortage of workers, leading to higher prices.

Rubeela Farooqi, chief US economist at research firm High Frequency Economics, said: "Prices have been outperforming targets for much longer than anticipated."

Major stock indices continued to decline for a second consecutive day this week, with the Dow Jones, S&P 500 and Nasdaq Composite falling 0.3%, 0.75% and 1.14% respectively on Tuesday.

The market was also affected on Tuesday by the World Health Organisation's (WHO) announcement that the new Covid-19 strain of Omicron is spreading faster than any previous strain and is probably already present in most countries worldwide even if not yet detected.

Will Compernolle, senior economist at FHN Financial predicts that "pressure in the supply chain should ease over the next few months as holiday buying subsides and producers have more time to adjust production capacity, but the impact on producer prices and then consumer prices will not be immediate."

Stock futures on Wednesday

US stock futures traded mixed as traders awaited the stimulus decision at the conclusion of the Federal Reserve's latest meeting for the year.

Major futures indices expected the Nasdaq to fall 0.3 per cent, while the Dow rose 0.1 per cent.