Our Take on the Surprising August PPI
Here are the implications of the cooler-than-expected inflation numbers.
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Coming off the August PMI data from S&P Global and ISM, we (and the market) were looking for August Producer Price Index numbers to trend higher, with the headline figure rising to 3.3% vs. 3.1% in July. Core PPI was expected to hit 3.5% in August, up from 3.4%. Instead, the August data came in far cooler than expected, with headline PPI at 2.6% and core back below 3% with its 2.8% reading. The even bigger standout was the 0.1% sequential drop for both headline and core PPI.
We’ll obviously take it, and the market is as well, given its move higher as CME FedWatch tool expectations for near-term rate cuts solidifies further. However, and yes, you knew there was going to be a “however,” we still have tomorrow’s August CPI report to contend with. If it surprises to the downside like today’s August PPI, the question the market will quickly shift to is how many rate cuts could we see in the coming year?
Considering the comments we collected from retailers and their earnings over the last several weeks about higher prices, and as they restock inventories and plan subsequent price increases, we won’t want to bury our heads in the sand when it comes to ongoing inflation pressures. That means we’ll continue to follow the data, which will refine rate-cut expectations in the months ahead.
