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PPI Stays Hot at +0.7%, Pre-Market Indexes Rebound

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Friday, September 10, 2021

We end this Labor Day-shortened trading week, which has been relatively light on earnings announcements and economic reads, with a fairly big print: the Producer Price Index (PPI) for August. The headline number rose 10 basis points higher than expected to +0.7%, down a bit from the +1.0% reported for July. Our record high in this series was back in January this year, +1.2%.

Ex-food & energy — the “core” read, which strips out near-term volatility — came in at +0.6%, down from the previous month’s +1.0%, which was the all-time series high. We should note here that these figures only go back to 2009, when PPI was recalibrated to bring more accurate readings to bear. Ex-food, energy & trade reached +0.3% last month, down from +0.9% in July.

Final demand year over year is +8.3%, a new high, topping July’s previous high +7.8%. Ex-food & energy is an all-time high +6.7%, as is the ex-food, energy & trade print of +6.3%. These both follow the previous all-time highs (to 2009) of +6.2% and +6.1%, respectively. Next week, we’ll get a look at final demand for the Consumer Price Index (CPI), expected to come in at +0.5%, up from July’s +0.3%.

What we see from these numbers, as well as looking at the PPI graph over the past couple years, is that goods and services providers have been able to raise prices at higher rates than we’ve seen in more than a decade. In fact, the upward trajectory, which has been more or less constant (barring the early-mid pandemic period and a few other small blips) is at a hotter clip than prior to the pandemic.

This is the sort of thing the Fed may wish to take a longer look at. PPI is helping shift the U.S. economy into one with higher inflation than we’ve seen in a very long time. Meanwhile, we’re still awash in liquidity, with the Fed backstopping our economy to the tune of $120 billion in asset purchases per month. Perhaps economic prints like this one will help the Fed move on from its current policy of rescuing us from deflation.

Currently, we’re seeing some bargain shopping in pre-market indexes: the Dow is +175 points, the S&P 500 is +20 and the Nasdaq +60. Despite challenges in trading so far this September, each of these indexes remain within 1% or so of their record closing highs. We shall see if Delta variant and supply chain difficulties provoke the Fed into keeping current policies intact, but lately our stream of economic metrics indicate the Great Reopening continues.

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