U.S. PPI rose 1.3% month over month in September, but Wall Street says it will rise just 0.4% in October. At the final stop of inflation superweek, the bet isn’t on whether prices rise, but on whether the increase will shrink.
Three inflation releases are on deck this week: China’s October CPI (forecast at +0.8% year over year) and PPI lead off Monday; U.S. October CPI comes Tuesday (consensus: +0.3% month over month, core +0.2%, versus +0.6%/+0.3% in September); and U.S. October PPI wraps things up Friday, released at 8:30 a.m. Eastern time (9:30 p.m. Beijing time).
The PPI figures are worth looking at separately:
Consensus for October is +0.4% month over month for headline PPI and +0.3% for core, versus +1.3% and +0.7% in September;
The consensus forecast for the year-over-year figure is 6.6%, up from 6.3% in September;
RBC’s forecast is a little more hawkish, at +0.5% headline, on the grounds that high oil prices are feeding through into freight costs.
Why keep a closer eye on PPI in the second half of the week than CPI? RBC points out that the year-over-year gap between core PPI (excluding trade services) and core goods CPI is 4.3 percentage points. If producers want to protect their margins, sooner or later their costs will be passed on to consumers. This PPI report will also affect expectations for October PCE, the inflation gauge the Fed cares about most, due out November 25.
The backdrop isn’t reassuring either: nonfarm payrolls rose by 165,000 in October, far exceeding expectations of about 65,000, and the odds of a 25-basis-point rate hike in December are already close to 80%.
This whale’s view, in three scenarios: If PPI comes in near the +0.4% consensus, the cooling-inflation narrative continues, expectations for a December hike ease, and risk assets get a breather; if PPI tops +0.5%, evidence that producer costs are being passed on to consumers is confirmed, the odds of a hike rise further, and risk assets such as $BTC come under pressure; if PPI comes in below +0.3%, a decline in inflation is confirmed, and we can look back at Tuesday’s CPI to see whether it weakened in tandem. Don’t chase the first move after the data—wait for PCE expectations to be revised before taking another look.
Three inflation releases are on deck this week: China’s October CPI (forecast at +0.8% year over year) and PPI lead off Monday; U.S. October CPI comes Tuesday (consensus: +0.3% month over month, core +0.2%, versus +0.6%/+0.3% in September); and U.S. October PPI wraps things up Friday, released at 8:30 a.m. Eastern time (9:30 p.m. Beijing time).
The PPI figures are worth looking at separately:
Consensus for October is +0.4% month over month for headline PPI and +0.3% for core, versus +1.3% and +0.7% in September;
The consensus forecast for the year-over-year figure is 6.6%, up from 6.3% in September;
RBC’s forecast is a little more hawkish, at +0.5% headline, on the grounds that high oil prices are feeding through into freight costs.
Why keep a closer eye on PPI in the second half of the week than CPI? RBC points out that the year-over-year gap between core PPI (excluding trade services) and core goods CPI is 4.3 percentage points. If producers want to protect their margins, sooner or later their costs will be passed on to consumers. This PPI report will also affect expectations for October PCE, the inflation gauge the Fed cares about most, due out November 25.
The backdrop isn’t reassuring either: nonfarm payrolls rose by 165,000 in October, far exceeding expectations of about 65,000, and the odds of a 25-basis-point rate hike in December are already close to 80%.
This whale’s view, in three scenarios: If PPI comes in near the +0.4% consensus, the cooling-inflation narrative continues, expectations for a December hike ease, and risk assets get a breather; if PPI tops +0.5%, evidence that producer costs are being passed on to consumers is confirmed, the odds of a hike rise further, and risk assets such as $BTC come under pressure; if PPI comes in below +0.3%, a decline in inflation is confirmed, and we can look back at Tuesday’s CPI to see whether it weakened in tandem. Don’t chase the first move after the data—wait for PCE expectations to be revised before taking another look.
