Today’s Producer Price Index (PPI), which measures wholesale prices in the economy, cooled more than expected.
Headline PPI fell 0.5% MoM, cooling to a 9.8% YoY rate from 11.3% in June, with the decline primarily driven by a drop in energy prices. ⛽
More importantly, Core Producer Prices, excluding energy and food, fell to 7.6% YoY, marking their fourth straight month of deceleration. 🔻
Yesterday we outlined a more nuanced take on why the Consumer Price Index decline wasn’t as important as many were making it out to be.
And today, it looks like the market began to adjust its expectations a bit. In addition to stocks paring some of their gains, Bonds actually sold off…sending yields higher. The long end of the curve was hit hardest, causing the yield curve to steepen slightly as investors rethink their expectations about the Fed and economy. 🤔
Some progress in the inflation measures is positive for sure, but the Fed needs to see substantial progress over several months before it starts easing off its tightening efforts. High single-digit producer and consumer prices are not where Powell wants them to be, so for now, tightening remains the name of the game.
The good news is, we’re only a day away from the weekend, which is something we can all sing about – Sweet PPI ba ba ba. 🎶
Catch you tomorrow, folks. 📆