Last night’s CPI stole the show; tonight’s PPI flipped the table
The data came in well above expectations across the board... crushing hopes for a market rebound.
Yesterday, CPI came in about 0.1 percentage point above expectations. Energy—especially gasoline—was the biggest contributor, but housing, cars, and clothing were also pushing higher, showing that inflationary pressure isn’t being driven by oil prices alone.
Taken together, the past two days’ data show that the energy shock is no longer just a one-off disturbance at the CPI level; its effects will continue to pass through to consumer prices. PPI surged to 6.3% year over year, far above CPI, making it hard to expect CPI to fall easily in the coming months.
For the Fed, this PPI report has essentially made the case for another rate hike. In policy terms, the Fed just raised rates by 25 basis points in September, bringing the target range to 3.75%–4%. Markets had mostly been betting on no move in October and another hike in December.
After two straight days of inflation data beating expectations, the Fed is likely to strike an even tougher tone at its October meeting, and the rate-cut narrative is losing credibility. For markets, Treasury yields and the dollar still have room to rise in the short term, putting pressure on stock valuations.
One more thing: The Philadelphia Fed and New York Fed manufacturing indexes both moved above 20. U.S. manufacturing is seeing growth in both volume and prices this cycle, leaving the recession narrative without much to latch onto for now. Risk assets may face pressure in the short term, but the long-term outlook remains bullish. Oil prices are the only wildcard left.
The data came in well above expectations across the board... crushing hopes for a market rebound.
Yesterday, CPI came in about 0.1 percentage point above expectations. Energy—especially gasoline—was the biggest contributor, but housing, cars, and clothing were also pushing higher, showing that inflationary pressure isn’t being driven by oil prices alone.
Taken together, the past two days’ data show that the energy shock is no longer just a one-off disturbance at the CPI level; its effects will continue to pass through to consumer prices. PPI surged to 6.3% year over year, far above CPI, making it hard to expect CPI to fall easily in the coming months.
For the Fed, this PPI report has essentially made the case for another rate hike. In policy terms, the Fed just raised rates by 25 basis points in September, bringing the target range to 3.75%–4%. Markets had mostly been betting on no move in October and another hike in December.
After two straight days of inflation data beating expectations, the Fed is likely to strike an even tougher tone at its October meeting, and the rate-cut narrative is losing credibility. For markets, Treasury yields and the dollar still have room to rise in the short term, putting pressure on stock valuations.
One more thing: The Philadelphia Fed and New York Fed manufacturing indexes both moved above 20. U.S. manufacturing is seeing growth in both volume and prices this cycle, leaving the recession narrative without much to latch onto for now. Risk assets may face pressure in the short term, but the long-term outlook remains bullish. Oil prices are the only wildcard left.