US Macro Updates

Key takeaway: Just like it has happened so many times in the past year or so, surprises on CPI and PPI have moved hand in hand. Yesterday, we saw both CPI and core CPI surprise to the downside resulting in a massive rally in bonds and stocks. Today, PPI also came in lower than expected and that resulted in a continuation of the risk rally we saw yesterday. Firstly, in line with consensus expectations, wholesale energy prices reduced in October (-6.5%). That primarily caused headline goods PPI to fall 1.4% and headline PPI to fall 0.5%. However, even outside the energy component, wholesale prices either declined outright or decelerated in October. Core goods PPI and core services PPI both increased a muted 0.1% in October.   

• PPI for Oct 2023 increased 1.3% y-o-y (Expectations 1.9%)
• PPI for Oct 2023 decreased 0.5% over prior month (Expectations +0.1%)

11th Oct 2023

Key takeaway: Last month, both the CPI and PPI had surprised to the upside. While headline PPI in August had accelerated, a large proportion was contributed by the sharp rise in energy prices. In line with consensus expectations, the growth in energy prices reduced in September. Accordingly, PPI for final demand goods decelerated from a high of 2.0% last month to 0.9% in September. Even then, a large part of this increase was contributed by energy prices. Core goods wholesale inflation remained muted at 0.1% m-o-m. Three month annualized core goods PPI is still muted at below 1%. Core services inflation, on the other hand, printed the same 0.3% m-o-m in September as the last month of August. On a 3 month annualized basis, service wholesale inflation remains relatively high at 4.8%. While this latest print has the look and feel of accelerating inflation, it is too early to call yet. However, further acceleration in inflation will not be good news for the economy.  

• PPI for Sep 2023 increased 2.2% y-o-y (Expectations 1.6%)
• PPI for Sep 2023 increased 0.5% over prior month (Expectations 0.3%)

14th Sep 2023

Key takeaway: Similar to this week’s August CPI release, the August PPI report showed some mild reacceleration in wholesale prices. Goods PPI which had continued to be minimal or negative increased a substantial 2.0%. However, a large part of the increase was attributable to a 10.5% rise in Energy components. Excluding food and energy, core wholesale goods priced increased a moderate 0.1%. Services PPI continues to be relatively high which remains a concern from the Fed’s perspective. Excluding trade, transportation and warehousing, core services PPI increased 0.3% m-o-m. The key data to watch for going forward will be whether wholesale prices reaccelerate significantly from here on and result in further downstream pressure on CPI. 

• PPI for Aug 2023 increased 1.6% y-o-y (Expectations 1.2%)
• PPI for Aug 2023 increased 0.7% over prior month (Expectations 0.4%)

11th Aug 2023

Key takeaway: Similar to yesterday’s CPI report, the July PPI report was mostly in line with expectations. Goods PPI continues to be minimal or negative. Final demand goods registered 0.1% m-o-m and core goods PPI registered 0% m-o-m. However, services PPI accelerated significantly from minus 0.1% in June to +0.5% in July. A large part of the increase was attributable to a rise in the trade and transportation indexes. Core services PPI, which excludes trade and transportation, printed the same as last month at 0.3% m-o-m. The y-o-y change in headline PPI is now down to 0.8% – from a high of 11% more than a year back.  

• PPI for Jul 2023 increased 0.8% y-o-y (Expectations 0.7%)
• PPI for Jul 2023 increased 0.3% over prior month (Expectations 0.2%)

13th Jul 2023

Key takeaway: Similar to yesterday’s CPI report, the June PPI report was all about core inflation. In a key development, core goods PPI recorded a negative m-o-m print – a first in recent history. If PPI is taken as an indicator for downstream CPI, goods deflation seems well on its way. Core Services PPI, on the other hand, still holds relatively steady at 0.3% m-o-m. However, even the 3 month annualized rate of core Services PPI is down to a relatively low 2.8%.  The y-o-y change in headline PPI is now down to 0.1% – from a high of 11% more than a year back.  

• PPI for June 2023 increased 0.1% y-o-y (Expectations 0.4%)
• PPI for June 2023 increased 0.1% over prior month (Expectations 0.2%)

14th Jun 2023

Key takeaway: Headline PPI recorded negative 0.3% in May (1.1% on a y-o-y basis). That makes it 4 negative m-o-m prints in the last 6 months. Goods inflation has been rapidly coming down, mostly attributable to declines in food and energy costs. Y-o-y prints of goods inflation are finally in negative territory. However, services inflation still holds relatively steady at 0.2% m-o-m. Even core services inflation which strips out trade and transport and warehousing costs is still 3.2% on a 3-month annualized basis.   

• PPI for May 2023 increased 1.1% y-o-y (Expectations 1.5%)
• PPI for May 2023 decreased 0.3% over prior month (Expectations -0.1%)

11th May 2023

Key takeaway: Similar to the April CPI print, there was not much in the April PPI print either for the doves or for the hawks. Though headline PPI or Total Final Demand Index climbed 0.2% m-o-m, slightly lower than consensus expectations. Core goods PPI also climbed 0.2% – the same as the previous month. Core services PPI increased to 0.4% in April compared to 0.2% in March. PPI for transportation and warehousing has recorded a negative print for the past 4 continuous months. On a year on year basis, PPI rose 2.3% – the lowest since Feb 2021.  

• PPI for Apr 2023 increased 2.3% y-o-y (Expectations 2.4%)
• PPI for Apr 2023 increased 0.2% over prior month (Expectations 0.3%)

13th Apr 2023

Key takeaway: In another sign of welcome relief for the US economy, PPI for March moderated further after having cooled a bit in Feb and also came on the heels of a lower than expected CPI print earlier in the week. Risk markets cheered in response and the Dow closed the day almost 400 points up. Headline PPI fell to negative 0.5% m-o-m. On a y-o-y basis, headline PPI was 2.7% – the lowest since this inflation scare began. However, most of the drop can be traced to a 6.4% m-o-m drop in energy in final demand goods. In contrast, final demand goods less food and energy grew 0.3% on a m-o-m basis. The 3 month annualized rate of this core goods PPI has now increased to ~4.8%. Goods disinflation has been a cornerstone of the declining inflation story. Any re-tracing up of goods inflation can be potentially disruptive to the economy. Final demand services also fell 0.3% m-o-m. The decline in services PPI has been seen in both trade (i.e. the margins received by wholesalers and retailers) as well as transportation.  

• PPI for Mar 2023 increased 2.7% y-o-y (Expectations 3.0%)
• PPI for Mar 2023 decreased 0.5% over prior month (Expectations +0.1%)

15th Mar 2023

Key takeaway: After a high print in January, PPI inflation moderated again in February. A reduction in PPI inflation was observed across food, energy, trade and transportation. Core PPI excluding trade (which excludes food, energy and trade from the overall inflation data) increased 0.2% m-o-m (a 3-month annualized rate of 3.6%). Core Goods PPI which excludes food and energy increased 0.3% m-o-m (a 3- month annualized rate of 4.0%). And lastly, Core Services PPI which excludes trade and transport and warehousing grew at 0.3% m-o-m (a 3-month annualized rate of 4.8%). While the monthly numbers recorded a fair tapering of inflation, overall inflation still is in elevated territory and far from the Fed’s comfort levels. 

• PPI for Feb 2023 increased 4.6% y-o-y (Expectations 5.4%)
• PPI for Feb 2023 decreased 0.1% over prior month (Expectations +0.3%)

16th Feb 2023

Key takeaway: One trend has been remarkably consistent the last few months. When it rains, it pours – and this was true of good news and bad news. On the back of a high CPI reading, we now have a higher than expected PPI reading as well. Headline PPI at 0.7% m-o-m and 6.0% y-o-y was higher than consensus expectations. This was not all due to energy. Core PPI which excludes food and energy also increased higher than expected at 5.4% y-o-y. There have been number of studies done on the correlation between PPI and CPI prints and arguments have been made both in favor and against. The Richmond Fed had a note released on this topic in September 2022 which also suggested some correlation between the 2 (found here). What’s more important is that the market also seems to believe the correlation – especially in an environment where both these inflation measures are headed in the same direction. And hence any higher than expected PPI prints will continue to make the risk markets more nervous. 

• PPI for Jan 2023 increased 6.0% y-o-y (Expectations 5.4%)
• PPI for Jan 2023 increased 0.7% over prior month (Expectations 0.4%)

18th Jan 2023

Key takeaway: The string of positive surprises on inflation data continued with the PPI for December release. Prices for final demand goods fell a large 1.6% m-o-m. However, almost 50% of that drop comprised Energy. Prices of Final Demand Goods less Energy and Food (taken as Core Goods Wholesale Inflation) also moderated to 0.2% m-o-m compared to 0.3% in November. Lastly, the all important Services Prices also moderated in December. Core Services – which excludes trade and transportation and warehousing, slowed down to a 0.0% m-o-m change. 

• PPI for Dec 2022 increased 6.2% y-o-y (Expectations 6.8%)
• PPI for Dec 2022 decreased 0.5% over prior month (Expectations -0.1%)

9th Dec 2022

Key takeaway: Usually PPI data is released post the CPI release. This month, however, PPI comes in before CPI and hence there is even more scrutiny on PPI this time. Recall, we experienced a nice positive surprise on both CPI and PPI last month. Markets had then rallied on the expectation of a faster decline in inflation and a Fed slowing down in response. November PPI data, however, was bad news all round. Firstly, like I had pointed earlier, Core Services inflation data matters a lot. And the past 6 months PPI releases have yet to show a meaningful, steady downward trend in Core Services inflation.The index for final demand services accelerated to 0.4% in November from 0.1% in October. But what matters even more is that a large part of this increase is attributable to Core Services (0.4% m-o-m)! Margins for final demand trade services, which shows change in margins received by wholesalers and retailers, also increased a large 0.7% – a solid indication of pricing power of businesses to pass on inflationary costs. Lastly, even PPI for core goods accelerated in November from a relatively calm September and October. All eyes will now be on this week’s CPI release.

• PPI for Nov 2022 increased 7.4% y-o-y (Expectations 7.2%)
• PPI for Nov 2022 increased 0.3% over prior month (Expectations 0.2%)

 

15th Nov 2022

Key takeaway: This feels like Jul-Aug all over again. In a similar turn of events, July CPI had surprised to the downside and was followed up by a favourable July PPI number released in August. The S&P500 had rallied over 15% in the late Jun, Jul and Aug timeframe. Just to refresh our memory on what happened next – a barrage of Fed speak on keeping rates higher for longer to tighten financial conditions once again. Not only did the S&P500 give up the Jul-Aug gain, it hit a new low in October around 3600. So it would not be surprising to see some of the Fed members come in to pour some cold water on ebullient investors even now! But there are 3 points we must remember for this round. First, the monthly core CPI reduction for October was more broad based than in July. While one month does not make a trend, the FOMC will still take heart from the reading. Second, from recent Fed speak it does seem like some members of the FOMC might be against tightening too aggressively (unlike July when there was unanimity). Lastly, the good part about today’s PPI number is that the Index for Final Demand Services (which comprises 65% weight in the PPI) declined 0.1% – in a first such decline since Nov 2020. The Index for Final Demand Goods went up but a substantial portion of that can be traced to an increase in energy price. In contrast, the drop in PPI in July was substantially on account of falling energy prices. Overall, there is no doubt that producer prices have been falling since the past few months. If the pace of decline accelerates further, it can be expected to translate to a lower CPI reading as well. But, just like I mentioned last time (see below!) don’t throw caution to the wind!  

• PPI for Oct 2022 increased 8.0% y-o-y (Expectations 8.3%)
• PPI for Oct 2022 increased 0.2% over prior month (Expectations 0.4%)

 

12th Oct 2022

Key takeaway: Overall, there is no doubt that producer prices have been falling since the past few months. Unfortunately, it has simply not been at the pace that the Fed would have liked to see. September PPI once again came in above expectations. However, that is also partly due to the fact that oil prices levelled off in September compared to the previous 2 months when they were falling from the peak. Some of the core components continue to decelerate. For instance, final demand for goods less food and energy recorded 0% m-o-m. In any case, the bottom line is that the markets and economy, both need producer prices that are falling at a much faster rate than present.  

• PPI for Sep 2022 increased 8.5% y-o-y (Expectations 8.4%)
• PPI for Sep 2022 increased 0.4% over prior month (Expectations 0.2%)

14th Sep 2022

Key takeaway: Last month PPI numbers had come in softer than expected similar to that month’s CPI numbers. And equity markets had rallied. Today, the trend repeated itself with a worse off PPI print similar to yesterday’s CPI print. While headline PPI fell 0.1% m-o-m, core PPI beat expectations increasing 0.4% in August vs 0.3% in July. Yet, overall this report was a respite after a brutal CPI yesterday. Producer prices are undoubtedly coming off their highs and will eventually translate to lower prices for the final consumer. 

• PPI for Aug 2022 increased 8.7% y-o-y (Expectations 8.8%)
• PPI for Aug 2022 decreased 0.1% over prior month (Expectations -0.1%)

11th Aug 2022

Key takeaway: When it rains, it pours ! The sequence of good news continues. Producer prices registered a negative m-o-m print of 0.5% against consensus expectation of +0.2%. Once again, a large portion of the PPI decrease is  attributable to energy price decline. However, Core PPI, just like Core CPI, also came in lower than expected.

• PPI for Jul 2022 increased 9.8% y-o-y (Expectations 10.4%)
• PPI for Jul 2022 decreased 0.5% over prior month (Expectations +0.2%)

14th Jul 2022

Key takeaway: Producer prices also registered a stronger than expected number on the back of a scorching CPI. While the headline number was higher than consensus, core producer price inflation was lower than consensus expectations and was lower than May as well. Moreover, a large portion of the PPI increase was still attributable to goods and with crude oil prices having levelled in July, there is a good chance that prices will level off further in the coming months.

• PPI for Jun 2022 increased 11.3% y-o-y (Expectations 10.7%)
• PPI for Jun 2022 increased 1.1% over prior month (Expectations 0.8%)

14th Jun 2022

Key takeaway: The good news is that the PPI reading for May was lower than consensus. But the good news stops right there. And the reading was only marginally lower than consensus. Just like previous month, PPI remains high enough to keep investor concerns elevated and policy makers hawkish. A couple of other key points. PPI for goods increased in May after having slightly declined in April – which is not a good sign. Prices of processed goods for intermediate demand as well as raw materials for intermediate demand also showed no signs of slowing. Infact, they accelerated on a m-o-m basis. Once again, remember, PPI is a leading indicator for CPI.

• PPI for May 2022 increased 10.8% y-o-y (Expectations 10.9%)
• PPI for May 2022 increased 0.8% over prior month (Expectations 0.8%)

12th May 2022

Key takeaway: Just like the April CPI report, PPI in April moderated a bit from March. Bit it still remains high enough to keep investor concerns elevated and policy makers hawkish. Once again, remember, PPI is a leading indicator for CPI.

• PPI for April 2022 increased 11.0% year over year (Expectations 10.7%)
• PPI for April 2022 increased 0.5% over prior month (Expectations 0.5%)

13th Apr 2022

Key takeaway: Though core CPI came in a bit softer the day before, a stubbornly high PPI still keeps rising inflation fears centerstage. Remember, PPI is a leading indicator for CPI. Also the magnitude by which actual readings exceeded expectations was key.

• PPI for Mar 2022 increased 11.2% year over year (Expectations 10.6%)
• PPI for Mar 2022 increased 1.4% over prior month (Expectations 1.1%)

15th Mar 2022

Key takeaway: Yet another inflation metric being stubbornly high. But there were 3 things to note with this report. 1) The month-on-month inflation index was mostly driven by goods. The Services Index was unchanged on a month-on-month basis. 2) A large part of the final demand goods price index was driven by energy costs. So stripping out energy costs, the PPI increase was not as severe. 3) Overall PPI numbers were better than expected and that might have contributed to the decent rally in stocks that we saw today !

• PPI for Feb 2022 increased 10% year over year (Expectations 10%)
• PPI for Feb 2022 increased 0.8% over prior month (Expectations 0.9%)

15th Feb 2022

Key takeaway: Stubbornly high PPI bolsters the case for faster rate hikes

• Producer Prices stayed at record highs indicating persistent economic pressures in the US.
• PPI for Jan 2022 increased 9.7% year over year
• PPI for Jan 2022 increased 1% over prior month