This morning, pre-market futures are in the green, though slashed from where they were ahead of the latest wholesale inflation report. This follows a deep selloff on Wednesday, where the Nasdaq alone shed -2%. At this hour, the blue-chip Dow is +160 points, the S&P 500 +15 and the Nasdaq +103 points. The small-cal Russell 2000 is +17 points.

PPI Inflation Highest in 3+ Years: +6.5%

After yesterday’s retail inflation numbers from the Consumer Price Index (CPI) for May demonstrated relatively manageable levels of price gains, this morning’s Producer Price Index (PPI) — the wholesale version of inflation — suggests something decidedly more thorny: +1.1% month over month, +6.5% year over year. These have reached their highest levels since March and November of 2022, respectively.

Revisions to the prior month moved in the right direction, -30 basis points (bps) for both — +1.1% month over month (now matched with the May print) and +5.7% year over year — but these are still significantly above target inflation rates for the previous regime at the Federal Reserve. Headline core PPI — stripping out volatile food and energy prices — came in as expected month over month at +0.4%, 30 bps below the upwardly revised +0.7% from April. This counts as the sole good news in this morning’s report.

Core PPI year over year reached +4.9%, and was revised up half a percentage point to +4.9% the prior month as well. This is important because we know global oil prices have increased since the start of the war on Iran, but stripped out of the core print we’re still looking at bedrock wholesale inflation at its highest level since January of 2023, when these numbers were coming down drastically month over month.

Further parsing these numbers, ex-food, energy and trade adds even more nuance: +0.8% month over month, +5.1% year over year. This illustrates that trade, especially over the past month (-1.1%), was sopping up a decent amount of this inflation. The +0.8% has not been this high since March of 2022 and year over year since October of that year. These are Great Reopening numbers that were largely cured by interest rate increases month after month. We’re in a very different situation today: what will it mean going forward?

One rather unnerving aspect here is when we compare the relatively benign core CPI numbers from yesterday — +0.2% month over month and +2.9% year over year — we can see that producers must have been absorbing a good deal of this inflation. How long can this be expected to last? Energy prices alone rose +10.7%; can energy companies continue to trim their margins to keep inflation under control on the retail side? Will they do so if the Strait of Hormuz remains closed for the next month or three? More questions than answers, most certainly.

Jobless Claims Creep Higher: +229K, +1.795M

Meanwhile, normal Thursday morning Weekly Jobless Claims are out this morning, coming in warmer on Initial Claims from expectations to +229K, up 4K from an unrevised +225K last week. These are the first levels this high since the +230K reported in subsequent months back in February of this year. We had been as low as +190K in the last week of April. Are higher energy prices moving Americans from a side gig with DoorDash (DASH Quick QuoteDASH - Free Report) or Uber (UBER Quick QuoteUBER - Free Report) to simply claiming unemployment benefits?

Continuing Claims remained historically low at 1.795 million (anything below 2 million longer-term jobless claims per week demonstrates a coping labor force), but up from the 1.771 million reported last week. These longer-term claims also report a week in arrears, so based on today’s new claims we might expect these numb ers to tick up on the long end, as well.

European Central Bank (ECB) Raises Rates +0.25%

The first major central bank to raise interest rates since the onset of the Iran war in late February is the European Central Bank (ECB), and it has done so by a quarter-point, +0.25%. This may have an odd counter-ring to it, especially with so many Americans (including President Trump) looking for a reduction in interest rates, but Zacks Chief Economist John Blank earlier this week that this move is expected to be “insurance,” rather than the start of a big hiking cycle.

“With the memory of 2022's energy crisis still fresh, Frankfurt is keen to not miss the boat this time,” Blank said in his Global Week Ahead article on Monday morning. “Policymakers have a tightrope to walk as they try to hike without exacerbating the growth hit already underway from the crisis. That's why markets reckon the ECB will only hike rates two or three times this year, with the next move most likely in September.”