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Inflation is top of mind today after the Producer Price Index (PPI) showed wholesale prices rose notably more than expected in January. This adds further weight to the notion that inflation may not be slowing at the pace economists have hoped.
The PPI, which measures prices received by producers of U.S. goods and services, increased 0.3% in the first month of the year. This marks the largest jump since August 2023. Economists had expected an increase of 0.1%, following the PPI’s 0.2% decrease in December.
Excluding the volatile Food and Energy categories, “core” PPI increased 0.5%, compared again to 0.1% expected inflation. Excluding food, energy and trade services, the PPI rose 0.6%, per CNBC, the “biggest one-month advance” since January of last year.
Today’s PPI comes as something of a confirmation of Tuesday’s Consumer Price Index (CPI) report, which also showed higher-than-expected inflation. Indeed, the CPI — which measures the prices paid by consumers — came out to an annual inflation rate of 3.1%. That was higher than the forecast for 2.9%. Additionally, the core CPI rose by 3.9% year-over-year (YOY), above forecasts for 3.4%.
What Do the Red-Hot Inflation Reports Mean for the Stock Market?
With both the CPI and PPI reading hotter than expected, the bears are back on Wall Street. Indeed, equity markets tumbled Tuesday following the CPI print and are on track to do the same Friday given the PPI.
It seems investors are losing faith that the Federal Reserve will cut rates before the second half of the year as a result of mounting evidence that inflation isn’t going down quite as fast as previously thought.
“PPI came in this morning above expectations, proving once again that the inflation battles is not close to over. Rate Cut expectations have taken a nosedive while yields have ripped higher,” noted Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth.
Higher interest rates tend to impede economic growth and tend to encourage higher unemployment and reduced spending. As such, Wall Street has been anxiously awaiting rate cuts this year.
Fed Chair Jerome Powell suggested that three rate cuts were in store this year. However, at the January policy meeting, Powell told reporters that Fed officials would like to see more “good data” showing that inflation is coming down before opting to lower the benchmark rate. Unfortunately, it’s unlikely that this week’s inflation reports will be considered “good data.”
According to the CME FedWatch Tool, interest rate traders are pricing in a nearly 90% chance that the Fed will hold rates steady at the March policy meeting. This is a sharp reversal from early January, when traders priced in a more than 70% chance of a March rate cut.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.
