A warning thread for Wall Street
In the grand tapestry of economic indicators, producer price index (PPI) is often overlooked. But this month, the warp and woof of producer prices emerged in bold colors, painting a vivid picture of inflation rising like a phoenix from the ashes.
index of Final demand producer prices rose by 0.3%, three times the profit forecast by Wall Street fortune tellers. The core index, which excludes food and energy prices, rose 0.5%. Core-core, which also excludes trade services, rose 0.6%, the largest monthly increase since January last year.
The report showed a shift in inflationary pressures from goods to services. Commodity prices fell 0.2% month-on-month, but Service prices increased by 0.6%.
This suggests that we have the following situation long period of high inflation This is because inflation in services is more persistent than inflation in goods. When the price of a commodity increases, manufacturers and farmers increase production to meet the increased demand. when the price of a service increases, it is difficult to call more people to meet the demand. Despite Elon Musk’s best efforts to produce Cylons, we are still unable to produce workers for most service industries.
Additionally, there are worrying signs that the disinflation of goods may be coming to an end. Core goods prices excluding food and energy rose 0.3%, accelerating after three months of modest 0.1% increases.
A deeper look at the economic structure
A closer look at the details of the Producer Price Index reveals that inflation threads the tapestry of the economy. The headline figure for the Producer Price Index reports the prices of goods and services sold in ‘.final demand” These are products sold to customers who are government buyers, residential buyers, businesses purchasing capital goods, and foreign buyers. Sometimes called an end user.
The report also includes metrics covering: Intermediate demand price. These are measures of the prices of goods and services, excluding capital goods, that are sold to businesses and then used in the production of goods and services for those businesses. final demand. In other words, these are the amounts businesses pay for materials, components, and services included in products sold to households, government buyers, and customers around the world.
The highest index of intermediate demand goods prices fell slightly in January, but this was entirely due to the sharp decline in energy prices and a smaller decline in intermediate food and feed prices. After removing these, Core processed product prices for intermediate demand rose 0.3%. Core intermediate demand prices rose for the second consecutive month, following two months of slight declines.
This is a strong indication of further inflation in goods that are integrated further down the supply chain into the economy. As a result, the disinflation in goods that has kept overall inflation in check despite rising service prices is likely nearing an end. Commodity prices may rise again and a reversal may actually occur.
The price index of intermediate services increased by 0.5%; Prices rise for third consecutive month and accelerate from December’s pace. The gains were broad-based, stitching up everything from non-residential rentals and legal services to wholesale metals and chemicals. Transport service prices fell significantly, but this was offset by increases in other regions.
The Producer Price Index report makes it even harder to ignore the Consumer Price Index and Import Price reports released by the Labor Department this week. Each is a thread that intertwines with the other, contributing to its effect, Evidence of a persistent undercurrent of inflation.
The looming shadow of PCE inflation
We will have to wait until later this month for the fourth major thread of inflation to emerge. personal consumption expenditure (PCE) Price Index. This is especially important. federal reserve uses this as the basis for its 2% inflation target and the forecasts contained in its Summary of Economic Forecasts.
The PCE price index has been trading below the CPI in recent months. Some analysts, overly attached to the dovish argument, are using it as a way to address rising inflation statistics and using weak PCE print as a reason why the Fed may continue to cut rates in the first half of this year. listed.
That’s always been a problem, so PCE inflation is not consistently lower than CPI inflation. Over time, they more or less catch up with each other. The real difference is that CPI tends to rise and fall more than PCE. The rest of the time they tend to track each other very well. Therefore, even if you find that PCE lags behind CPI, you should not assume that PCE will continue to lag.
January PCE data to be released at the end of February is likely to show PCE catching up. Part of the producer price index heralds an increase in his PCE index. The only question is how much. american bankanalysts think core PCE could be 0.4%, writing that “the wedge between core PCE and core CPI appears small this month.”
The Federal Reserve has recently taken a cautious stance on interest rates. Given the recent upward trend in inflation, it seems increasingly likely that: The Fed will hold off on cutting interest rates until at least June or July.— and if it is cut, it will likely not be until after the presidential election in November. This will be very frustrating for rate cut supporters on Wall Street and in the U.S. Senate, but it will emphasize the Fed’s commitment to maintaining price stability and independence.
Speaking of Wall Street, there’s a good chance that the collective gasp of anticipation for layoffs among its residents will turn into a collective gasp. The overwhelming consensus is evidenced by a survey of Bank of America fund managers. 90% expect interest rate cuts this year– We are in an increasingly unstable position. The economy’s stubborn inflation signals suggest a scenario in which the Fed may avoid cutting rates altogether, a prospect that could send ripples of turmoil through financial markets.
The disinflationary forces that convinced many that we were entering a period of monetary easing have receded, at least for now, leaving the economy still grappling with inflationary pressures.When Wall Street Becomes Recognize patterns on walls It’s still an open question.
