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January's PPI Increased Higher Than Expected

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It’s a big morning for economic data — so much, in fact, that it’s hard to sum up the results in a couple phrases; arrows are pointing every which way. For pre-market futures, these figures are sending indices down: from -85 points on the Dow, -20 on the S&P 500 and -65 points on the Nasdaq before the data hit the tape to -30, -140 and -100 points afterward. So market participants are seeing these news items as a net negative.

January’s Producer Price Index (PPI) numbers, like the Consumer Pice Index (CPI) reported earlier in the week, came in hotter than expected: +0.7% on headline month over month, above the +0.4% expected and a big reversal from the -0.5% reported for December. This is the highest figure we’ve seen since June of last year and still well off the +1.7% we saw in March of 2022.

Stripping out food and energy costs, the “core” print was still hotter than expected: +0.5%. This again is considerably below 12-month highs in March of +1.3%, but ex-food, energy and trade came in at +0.6% — three times analysts’ expectations (+1.0% in March ’22). These PPI numbers can be seen as something of a forecast toward future CPI results, as producers attempt to pass on added costs to consumers.

Year over year, headline reached +6.0%, well above the +5.4% expected. That said, it’s still down 20 bps month over month, so at least these figures are (slowly) moving in the right direction. The high number here was again in March: a whopping +11.7%. So while it’s clear we’ve receded notably from peak inflation this cycle, we’re still a long way from where we — the Fed — want us to be.

Core PPI year over year came in at +5.4%, down sequentially and well off the March ’22 high +9.7%. Ex-food, energy and trade on a year over year basis tallied +4.5%, a half-point hotter than expected, though 10 bps lower than analysts were looking for. Same analysis applies: right direction, much slower than anticipated. At this rate, we won’t be seeing inflation rates coming down to desirable levels for a year or more.

Elsewhere, Initial Jobless Claims ticked down to 194K last week, a smidge below the downwardly revised 195K the previous week. Continuing Claims ticked up to 1.69 million from 1.68 million posted in the previous report, but even though we’re now at levels higher than the 1.35 million we were seeing last spring, we’re still historically nicely below the norm.

We’ll get to other economic data in this afternoon’s report, including Housing Starts and Building Permits, as well as the February Philly Fed print. Suffice it to say for now that market activity is selling this news after heady gains across major indices yesterday. To be honest, yesterday’s bullishness didn’t make as much sense as this morning’s sell-off. We’ll see where we reach a near-term bottom based on this higher-than-expected inflation data.

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