Interpreting the Surprising Drop in Producer Price Index | Episode 145 | 06-13-24

Can the latest drop in the Producer Price Index (PPI) signal a turning point for the Federal Reserve's inflation strategy? In this episde, we unpack the surprising PPI data that shows the largest decline since October. Our analysis highlights how a significant decrease in energy prices played a major role in this unexpected dip. Despite the headline PPI figures falling, the "super core" measure (excluding food, energy, and trade) remained flat for the month but still reflects a year-over-year increase of 3.2%.

We also explore the bond market's optimistic response, with 10-year yields dipping below 4.3% and two-year yields hitting their lowest since April. However, don't miss our discussion on why the equity markets experienced a slight drop, a trend influenced more by European markets than this specific report. Stay with us as we wrap up with a preview of tomorrow's highly anticipated University of Michigan Consumer Sentiment Index.

We got our second piece of inflation data today. It's Thursday, june 13th, and this is your regular segment of Markets with Megan this morning. We got the producer price index, so this follows along typically with the consumer price index and this looks at prices that are paid at the producer level. This was a Fed-friendly report, as some would say, because the numbers came in lower than expectations At the headline level for the month. We actually saw the prices decline. It was the biggest drop we've seen since October and then when you strip out things like food, energy, trade, the indicator came in actually flat, so up 0.0% for the month. This is a Fed-friendly report because the expectations were for modest increases on a month-over-month basis. Now let's talk about where this came from. This was primarily energy, and we know that. We saw that in the CPI report as well, but a big drop on the energy component. Now, when we look at these things on a year-over-year basis, we are seeing that at the headline level at 2.2%. But when you strip out and we kind of call this the super core when you strip out food, energy and trade, it's still growing above 3% on a year-over-year basis. So it's 3.2%. And if you look at the revisions to April's data. On a year-over-year basis, all three of these indicators whether you strip out food, energy or just the headline number, or food, energy and trade all actually were revised higher. So the Fed's going to pay attention to that. We still think that this was a Fed-friendly report, but let's keep in mind that they want to see more consistent reports like this before they can commit to any kind of rate cuts. This year. The bond market liked this. We saw 10-year yields fall below 4.3%. The two-year is at 4.7%, which is actually the lowest level since April. So bond yields are lower. That means prices are higher. The equity market is slightly off today and this has more to do with what's going on in European equity markets than it really does with this individual report. That's all we off today, and this has more to do with what's going on in European equity markets than it really does with this individual report. That's all we have today. We'll be back tomorrow with the final report for the week and that's the University of Michigan Consumer Sentiment Index for the month. Thanks. If you have any questions, please feel free to reach out to podcasts at Verdence. com.