Source: Golden Ten Data

On Thursday, the US March PPI data recorded the biggest year-on-year increase in 11 months, highlighting the stickiness of inflation.

According to data released by the US Department of Labor, PPI data rose 2.1% year on year, a new high since April 2023, but it was lower than the expected 2.2%, and the month-on-month growth rate slowed to 0.2%, lower than the expected 0.3%.

Excluding volatile food and energy categories, core PPI rose 2.4% year over year and 0.2% month over month.

According to PPI data, the cost of services has risen for the third month in a row, which has proven to be the main reason why inflation remains high. Government data released on Wednesday showed that the US CPI data exceeded expectations for the third month in a row, prompting traders to postpone their expectations of when the Federal Reserve would cut interest rates.

The PPI increase in March was lower than expected, making people optimistic that the Federal Reserve does not have to continue to implement aggressive interest rate policies. Traders are still optimistic that the Federal Reserve will cut interest rates for the first time in September, and the possibility of cutting interest rates in July has increased slightly.

One reason economists are concerned about PPI reports is that the PCE price index, the Fed's preferred inflation indicator, uses several categories in PPI data. The March PCE Price Index will be released later this month.

The report shows that the cost of portfolio management increased 0.5% month-on-month, while the cost of hospital outpatient clinics did not change. More broadly, service costs rose 0.3% month-on-month, partly due to higher ticket prices. Commodity prices declined slightly.

Although Fed policymakers are waiting for service sector inflation to slow down while discussing when to cut interest rates, there is a risk that the recent trend of commodity deflation will stagnate due to the continuous rise in oil and other commodity prices.

Due to geopolitical and supply-side concerns, crude oil prices hovered near their highest level since October last year, which could increase production and transportation costs, which in turn affected consumers.

Another data shows that the number of jobless claims in the US fell short of expectations at the beginning of last week, and the number of renewed jobless claims continued to rise, indicating that the labor market is still quite tight, but it may take longer for some unemployed people to find new jobs.

The US Department of Labor announced on Thursday that the number of jobless claims at the beginning of the week ending April 6 fell by 11,000 to 211,000 after seasonal adjustments. The number of renewed jobless claims for the week ending March 30 increased by 28,000 to 1,817,000.

Although the Federal Reserve raised interest rates sharply to curb inflation, the labor market remained resilient. Employment growth accelerated in March, and the unemployment rate fell to 3.8% from 3.9% in February. A strong job market and high inflation forced the financial market to postpone expectations that the Federal Reserve would cut interest rates for the first time from June to September.

After the data was released, New York Federal Reserve Chairman Williams pointed out that the Federal Reserve has made great progress in better balancing inflation and employment targets, but he acknowledged that the policymakers' work is yet to be completed. Williams reiterated that he expects inflation to continue to gradually fall back to 2%, but he quoted recent inflation data as saying that he expects “minor twists and turns.”

He also pointed out that there are signs that the labor market is becoming more “normal,” and added that he expects the unemployment rate to peak at 4% this year and then gradually decline. Interest rate cuts are expected to begin this year. Inflation will remain at 2.25% to 2.5%, and fall back to 2% next year.

Editor/jayden