- Prior was 6.3%
- PPI final demand m/m +0.3% vs +0.4 expected
- Prior m/m +1.3%
- Ex-food and energy y/y +5.0% vs +5.0% expected
- Prior ex-food and energy 5.0% y/y
- Ex-food and energy m/m +0.3% vs +0.3% expected
- Prior ex-food and energy +0.7% m/m
- Ex-food, energy and trade y/y +4.9% vs +5.0% prior
- Ex-food, energy and trade m/m +0.5% vs +0.5% prior
The market is increasingly concerned about rising inflation but this is a slight relief, with some bids in bonds afterwards and modest USD selling. We will hear from the Fed’s Goolsbee on CNBC momentarily and he recently called inflation “borderline alarming”. Ahead of the data, the market was pricing in 28.5 bps of hikes for December, which is a bit over a 10% chance of a 50 bps move, with 86 bps in hikes priced in over the coming year.
For background, the Producer Price Index from the US Bureau of Labor Statistics measures the average change in prices that domestic producers receive for their goods, services and construction. It’s released monthly at 8:30 am ET, typically a day or two after CPI, and tracks inflation from the seller’s side rather than the consumer’s.
The headline is the final demand index, which covers output sold for personal consumption, business investment, government and export. Services make up about 68% of it, goods about 29% and construction the rest, so it’s far broader than a gauge of factory-gate prices. Markets focus on two core measures: final demand excluding food and energy, and the narrower measure that also excludes trade services. Trade services capture retailer and wholesaler margins, which swing sharply and often run opposite to input costs, as when gas station margins shrink during an oil spike.
The PPI is still watched as a pipeline indicator. The intermediate demand indexes for processed goods, unprocessed goods and services show cost pressures building at earlier stages of production before they reach consumers.
Its biggest market role today is as an input to core PCE, the Federal Reserve’s preferred inflation gauge. Components such as portfolio management fees, airline passenger services, physician care and hospital services feed directly into PCE, so economists use CPI and PPI together to estimate core PCE weeks before its release. A surprise in those categories can shift Fed pricing even when the PPI headline looks unremarkable.
PPI data are revised for four months after initial publication, and the revisions are often large enough to change the trend.
This article was written by Adam Button at investinglive.com.