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PPI +11% Year Over Year: Lower, Still Very High

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Thursday, May 12, 2022

Following yesterday’s Consumer Price Index (CPI) results for April — which ticked downward, mostly, month over month but remained at historically elevated levels — we see its sister report Producer Price Index (PPI) this morning, which provides insights to the other side of the economy. Generally speaking, we see similar results: numbers coming off peak but not falling as far as many had hoped.

PPI headline for April came in-line with expectations for +0.5%, which is a welcome drop from the upwardly-revised cycle high +1.6% in March. This is a final demand number, by the way, and the fact that it’s still growing at half a percentage point continues to illustrate prices rising month over month — not quite as savory to look at with inflation levels already this high.

The “core” print — stripping out volatile food and energy prices — amounted to only half what analysts were predicting: +0.4% from and expected +0.8%. Minus food, energy and trade costs, this figure is exactly in-line with expectations at +0.6%. For some perspective, the high water mark here came in January of ’21, at a solid +1.0%.

Year over year is where most market participants are taking a close look at both CPI and PPI numbers. Yesterday’s CPI year-over-year headline came in at +8.3% — once again, below the +8.6% expected but still painfully high. Today’s April PPI year over year reached +11.0% — down from the upwardly revised +11.5% from March, but still well within double-digits. It’s also higher than the consensus +10.7%.

Year over year core was a baby step in the right direction: +8.8% versus +8.9%, and slightly below last month’s originally reported cycle-high +9.2%. Minus food, energy and trade, we see +6.9% — 30 basis points higher than the +6.6% expected and the upwardly revised +7.2% last month. Taking steps down the mountaintop is still progress, but from such high peaks it’s still a little treacherous.

The market say, “Way ahead of you.” The Dow, which closed yesterday at 14-month lows, is off another -135 points at this hour, with the Nasdaq -165 points and already down -30% from its November ’21 highs. The S&P 500 is -30 points currently. For sure, inflation moderating downward is officially a good thing, but don’t expect markets to get happy about this until they see bigger hunks of pricing indices falling off.

Meanwhile, Initial Jobless Claims stayed within very healthy levels, even though 203K is a tick up from the upwardly revised 202K the previous week and the 194K analysts were expecting. While psychologically pleasing, being just under or over 200K jobless claims per week is still historically strong. We’ll find this out one day when layoffs bring more Americans back to jobless claims; right now, we should rest easy on the labor market.

For Continuing Claims, we see yet another 50+ year low: 1.343 million is notably down from the previous week’s slightly upwardly revised 1.39 million. These types of longer-term jobless claims figures harken back to the late 1960s — pre-Internet, pre-high tech, pre-biopharma, pre-a lot of things.

The takeaway? If things progress as they are, we’ll get where we want to be. But it will take longer than even some pessimists had expected. Supply chain issues, the war in Ukraine and now another wave of Covid are kicking up headwinds many of us — the Fed Chair included — thought would have been things of the past by now. They’re not, but neither is the sky falling.

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