Source: Finance Association
① Although the April PPI data greatly exceeded expectations, the US stock market sentiment was generally stable due to the obvious decline in the March data; ② Federal Reserve Chairman Powell also said that the PPI data cannot be called “overheated”; ③ before Wednesday, the CPI data, which has caused repeated market changes since this year, will appear before the market.
On Tuesday morning local time, the US Department of Labor announced the latest changes in wholesale prices (Producer Price Index, PPI for short). As a leading indicator of the Consumer Price Index (CPI), the PPI growth rate that significantly exceeded expectations also made the market quietly cry out bad.
The US Department of Labor will disclose the latest CPI data before the market on Wednesday, which is also regarded as an important reference (one) for the Federal Reserve's interest rate cut path.
Inflation has stagnated
As a measure of producer costs and prices, the US rose 0.5% month-on-month in April, a bit higher than the 0.3% expected by the market. Another factor here is the decline in PPI data for March, from a 0.2% increase to a 0.1% contraction. Furthermore, the core PPI, which excludes energy and food prices, also increased 0.5% month-on-month, which is more than double the expected 0.2% increase.
In terms of annual data, PPI rose 2.2% year on year in April, and core PPI rose 3.1% year on year, all the highest values since April last year.
Worse still, despite signs of rising energy prices in April, the main reason driving up PPI is still rising service sector prices. The report shows that nearly three-quarters of the monthly increase in PPI in April was due to rising prices for service producers.
PPI captures changes in commodity prices before they are delivered to consumers, and is also seen as a “barometer” of consumer market inflation over the next few months.
Regarding Tuesday's data, Chris Larkin (Chris Larkin), managing director of trading and investment at Morgan Stanley E-Trade, explained that as the inflation data greatly exceeded expectations, this morning's stagnant inflation seemed to be at an impasse again. However, considering that last month's data was revised down, this report may not be as shocking as it initially seemed.
Of course, high PPI also means pressure on producers to pass on costs. Kurt Rankin, a senior economist at PNC Financial Services Group, believes that today's PPI figures mean that inflation will continue until June, July, and August. Companies that deal directly with consumers will face supply-side pressure, combined with continued strong consumer demand. These companies also need to pass on their own costs to consumers.
The last step in reducing inflation
Like today's PPI data, the US consumer inflation data CPI has been higher than expected since entering 2024, raising concerns that “economists misestimate the extent to which inflation is stubborn again.” At the same time, the Federal Reserve's preferred inflation indicator, the Department of Commerce's PCE data, has also been high, showing that the inflation rate has stagnated at around 3%.
In addition to official data, various surveys also showed a rise in inflation expectations. According to a survey released by the New York Federal Reserve on Monday, driven by expectations of housing-related costs, American consumers expect 3.3% inflation after a year, the highest value since November last year.
Against the backdrop of stagnant inflation, the market's expectations for the Fed to cut interest rates are also “steadily falling”. From the initial “interest rate cut 6 times a year” to “starting to cut interest rates in June,” the latest script has been postponed until “the first interest rate cut was in September.”
Regarding PPI data and the Federal Reserve's inflation target, US Federal Reserve Chairman Powell, who is on a trip to the Netherlands on Tuesday, said that the nominal PPI data is relatively high, but the (previous) revised figures have declined, so he wouldn't call it “inflation is very hot,” but more of a mixture.
Powell also said that he believes inflation will fall to the low level seen last year, but “confidence in this is weaker than at the beginning of the year.” The austerity policy may take longer, but the Federal Reserve Chairman believes that inflation will eventually be kept close to the 2% target.
Editor/jayden