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Pre-Markets Flat on PPI -0.1%, +8.7% Year Over Year

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Wednesday, September 14, 2022

Following the worst single trading day in over two years — and the seventh-worst day ever on the Dow, fifth-worst on the Nasdaq — pre-market futures were buoying to the positive. This was prior to this morning’s Producer Price Index (PPI) for August, which was better than yesterday’s Consumer Price Index (CPI), which sent the indices on their precipitous drop. After the PPI print, the Dow, S&P 500 and Nasdaq are all flattish.

August PPI on headline was as expected: -0.1% month over month, revised to a tighter -0.4% for July. These figures represent the wholesale inflation read, so negative numbers here are better as we continue to battle inflation. The highest level of the cycle came in March of this year, +1.7% — a big difference in monthly changes from -0.1%.

Stripping out food and energy costs, the “core” read is +0.4% — the fourth-straight month higher, indicating “transitory” inflation we saw at the start of the year has permeated to stickier aspects of the economy. This doubles the +0.2% we saw for July and the +0.3% expected. We’re going in the wrong direction here, but again we’re well off the peak +1.3% we saw in March. Excluding food, energy and trade, +0.2% is as expected as well as in-line with the previous month. March saw +1.0% here.

Year over year PPI, today’s measure of overall inflation rates (along with CPI year over year), came in at +8.7% — lower than the +8.8% expected and the +9.8% from the previous month. It’s even farther removed from March’s +11.7%, but we’re still seeing wholesale inflation over 8 1/2%, which is less than desirable for the Fed.

Core PPI year over year reached +7.3%: 30 basis points (bps) lower than July but 30 bps higher than expected (+9.7% for March). Ex-food, energy and trade was +5.6%, a tick higher than expected but 20 bps down from July’s +5.8% (+7.1% for March).

Clearly, and as we definitely learned yesterday, the Fed still has a ways to go in hiking interest rates until inflation is successfully quashed. We’ve not yet heard any capitulation from Fed Chair Powell or anyone else in the voting committee that optimum +2% inflation might be ratcheted up to reach our goals, but we should definitely bank on a 75-bps hike on the Fed funds rate a week from today. That would bring the low end of the range to +3.00%, with likely another 100 bps to climb by the end of the year.

So while PPI data is slightly better than CPI — which contends with profit margins and wage hikes that PPI figures do not — we’re still very high on inflation. Some industries have been more successfully wrestled to the mat than others; whether our economy slides into recession very much relies on whether we can achieve a smoothing-out of lower inflation metrics across the board before we run into employment problems.

https://www.zacks.com/bio/mark-vickery


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