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The monthly Producer Price Index (PPI) — the sister report to last week’s Consumer Price Index (CPI) which posted positive surprises that led to the best single day of trading in two years — for October is out this morning, and it continues the narrative that inflation is provably past peak levels. A headline of +0.2% on PPI is half what was expected, and in-line with the downwardly revised +0.2% the previous month. The cycle high was back in March this year: +1.7%.
Stripping out food and energy gives us the “core” read, which came in unched month over month, lower than the +0.3% expected and the downwardly revised +0.2% for September. Ex-food, energy and trade posted +0.2%, down from the +0.3% estimate. These high water marks also came in March: +1.3% and +1.0%, respectively.
Year-over-year numbers give us an even deeper look into inflation metrics, and here we see a +8.0% on headline, a half-point lower from September and 30 basis points (bps) beneath what was expected (March was +11.7%). Core reached +6.7% — under the +7.2% the previous month, for a half-point drop (+9.7% at the March peak). Ex-food, energy and trade amounted to +5.4% year over year, below the +5.6% expected and last reported (+7.1% in March). This is all demonstrably in favor of the Fed’s rate hikes having cooled the economy back toward — but not yet at — optimum inflation levels.
Consider also that higher energy prices last month added +2.7% to this headline number, and this proves the point even further: inflation is in the process of being tamed, without question. In aggregate, since the last Fed meeting which saw its fourth straight 75 bps hike, economic prints have all begun to hum a different tune, and the Fed should be able to name it: 75 bps hikes are no longer necessary. Based on the recent press conferences from Fed Chair Jay Powell, the monetary policy body is not yet in the mood to pause (let alone reverse) interest rates, but a case for 50 bps in December has never been stronger.
Walmart (WMT - Free Report) shares jumped +6% in today’s pre-market, following the big-box retailer’s solid Q3 beats on both earnings and sales: earnings per share of $1.50 outpaced the Zacks consensus of $1.32 (and the year-ago quarter’s $1.45 per share) on $152.8 billion topped the $147.4 billion expected, up almost +9% year over year. This is even more impressive when we consider Walmart took a $1.05 per share charge on a $3.1 billion legal settlement relating to opioid sales in its Pharma department.
Walmart’s strong quarter came from higher sales and price points for Groceries, while Inventories continue to be worked down. Back in Q1, Walmart reported +32% in inventories; that’s been reduced to +13% in Q3. Comps in the U.S. grew +8.2%. And now, in Q4, the discount retail giant appears set up for a robust holiday season — as long as consumers stick with the higher price tags on the company’s goods. For more on WMT’s earnings, click here.
Home Depot (HD - Free Report) also outperformed on both top and bottom lines in its Q3 report, though its stock has experienced a bit more turbulence in the pre-market. Earnings of $4.24 per share on $38.87 billion in revenues outperformed the $4.11 per share and $37.97 billion expected, respectively. Full-year guidance is in-line, with the specialty big-box retailer expected comps of +3%. Customer purchases fell -4% in the quarter, but the average ticket price grew +9%. Like with Walmart, Home Depot sees success in hiking prices on consumers in the quarter. For more on HD’s earnings, click here.
Image: Bigstock
October PPI Makes the Case for 50bps Fed Hike
Tuesday, November 15, 2022
The monthly Producer Price Index (PPI) — the sister report to last week’s Consumer Price Index (CPI) which posted positive surprises that led to the best single day of trading in two years — for October is out this morning, and it continues the narrative that inflation is provably past peak levels. A headline of +0.2% on PPI is half what was expected, and in-line with the downwardly revised +0.2% the previous month. The cycle high was back in March this year: +1.7%.
Stripping out food and energy gives us the “core” read, which came in unched month over month, lower than the +0.3% expected and the downwardly revised +0.2% for September. Ex-food, energy and trade posted +0.2%, down from the +0.3% estimate. These high water marks also came in March: +1.3% and +1.0%, respectively.
Year-over-year numbers give us an even deeper look into inflation metrics, and here we see a +8.0% on headline, a half-point lower from September and 30 basis points (bps) beneath what was expected (March was +11.7%). Core reached +6.7% — under the +7.2% the previous month, for a half-point drop (+9.7% at the March peak). Ex-food, energy and trade amounted to +5.4% year over year, below the +5.6% expected and last reported (+7.1% in March). This is all demonstrably in favor of the Fed’s rate hikes having cooled the economy back toward — but not yet at — optimum inflation levels.
Consider also that higher energy prices last month added +2.7% to this headline number, and this proves the point even further: inflation is in the process of being tamed, without question. In aggregate, since the last Fed meeting which saw its fourth straight 75 bps hike, economic prints have all begun to hum a different tune, and the Fed should be able to name it: 75 bps hikes are no longer necessary. Based on the recent press conferences from Fed Chair Jay Powell, the monetary policy body is not yet in the mood to pause (let alone reverse) interest rates, but a case for 50 bps in December has never been stronger.
Walmart (WMT - Free Report) shares jumped +6% in today’s pre-market, following the big-box retailer’s solid Q3 beats on both earnings and sales: earnings per share of $1.50 outpaced the Zacks consensus of $1.32 (and the year-ago quarter’s $1.45 per share) on $152.8 billion topped the $147.4 billion expected, up almost +9% year over year. This is even more impressive when we consider Walmart took a $1.05 per share charge on a $3.1 billion legal settlement relating to opioid sales in its Pharma department.
Walmart’s strong quarter came from higher sales and price points for Groceries, while Inventories continue to be worked down. Back in Q1, Walmart reported +32% in inventories; that’s been reduced to +13% in Q3. Comps in the U.S. grew +8.2%. And now, in Q4, the discount retail giant appears set up for a robust holiday season — as long as consumers stick with the higher price tags on the company’s goods. For more on WMT’s earnings, click here.
Home Depot (HD - Free Report) also outperformed on both top and bottom lines in its Q3 report, though its stock has experienced a bit more turbulence in the pre-market. Earnings of $4.24 per share on $38.87 billion in revenues outperformed the $4.11 per share and $37.97 billion expected, respectively. Full-year guidance is in-line, with the specialty big-box retailer expected comps of +3%. Customer purchases fell -4% in the quarter, but the average ticket price grew +9%. Like with Walmart, Home Depot sees success in hiking prices on consumers in the quarter. For more on HD’s earnings, click here.
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