CPI has just come in, and PPI has once again topped expectations, with inflationary pressures continuing to build
#U.S. September PPI annual rate rises to 6.3%
CPI came in above expectations the day before, and tonight PPI rose across the board once again, immediately dashing hopes for a market rebound.
Energy and gasoline were the main drivers of the CPI increase, but housing, car and clothing prices also rose in tandem, showing that inflationary pressures are not being driven by oil prices alone. Taken together, the two reports suggest the energy shock is no longer a short-term disruption, and cost pressures will continue to pass through to consumers. PPI came in at 6.3% year over year, significantly above CPI, signaling that CPI is unlikely to fall quickly in the months ahead.
This PPI report reinforces the case for the Fed to continue raising interest rates. The Fed had just raised rates by 25 basis points in September, bringing the target range to 3.75%–4%. The market had broadly expected a pause in rate hikes in October, followed by another adjustment in December. After two consecutive inflation reports came in red-hot, the Fed’s messaging at its October meeting is likely to be more hawkish, and rate-cut expectations have been completely dashed.
Treasury yields and the U.S. dollar may continue to rise in the short term, putting pressure on stock valuations. The Philadelphia Fed and New York Fed manufacturing indexes both climbed above 20, while U.S. manufacturing activity and prices rose together, leaving the recession narrative without much support for now.
Risk assets face near-term pressure, but the long-term thesis remains intact. Oil prices are the only variable that could break the deadlock in the market’s next move. With inflation data continuing to rise, expectations of tighter liquidity will keep weighing on markets. The key focus now is on the signals from the Fed meeting.
#U.S. September PPI annual rate rises to 6.3%
CPI came in above expectations the day before, and tonight PPI rose across the board once again, immediately dashing hopes for a market rebound.
Energy and gasoline were the main drivers of the CPI increase, but housing, car and clothing prices also rose in tandem, showing that inflationary pressures are not being driven by oil prices alone. Taken together, the two reports suggest the energy shock is no longer a short-term disruption, and cost pressures will continue to pass through to consumers. PPI came in at 6.3% year over year, significantly above CPI, signaling that CPI is unlikely to fall quickly in the months ahead.
This PPI report reinforces the case for the Fed to continue raising interest rates. The Fed had just raised rates by 25 basis points in September, bringing the target range to 3.75%–4%. The market had broadly expected a pause in rate hikes in October, followed by another adjustment in December. After two consecutive inflation reports came in red-hot, the Fed’s messaging at its October meeting is likely to be more hawkish, and rate-cut expectations have been completely dashed.
Treasury yields and the U.S. dollar may continue to rise in the short term, putting pressure on stock valuations. The Philadelphia Fed and New York Fed manufacturing indexes both climbed above 20, while U.S. manufacturing activity and prices rose together, leaving the recession narrative without much support for now.
Risk assets face near-term pressure, but the long-term thesis remains intact. Oil prices are the only variable that could break the deadlock in the market’s next move. With inflation data continuing to rise, expectations of tighter liquidity will keep weighing on markets. The key focus now is on the signals from the Fed meeting.