US Producer Price Data (Dec): –
PPI M/M -0.1% versus +0.2% expected, previous +0.4% –
PPI Y/Y +2.6% versus +3.0% expected, previous +3.1% –
Ex. Food & Energy M/M -0.1% versus +0.2% expected, previous +0.3% –
Ex. Food & Energy Y/Y +2.3% versus +2.5% expected, previous +2.4%
Market Sensitivity: Very high.
What Is It: Measures the change in prices paid by businesses.
Most Current News Release on the Internet: www.bls.gov/ppi
Home Web Address: www.bls.gov
Release Time: 8:30 a.m. (ET); announced two to three weeks after the reporting month ends.
Source: Bureau of Labor Statistics, Department of Labor.
Revisions: The monthly data is subject to one revision that is published four months later. Annual revisions are published in February with the January data, and it can go back five years.
The PPI may not be an ideal leading indicator of consumer prices, but you’d never know that from the way the bond market reacts. Producer price inflation is one of the hottest economic indicators released by the government. Fixed-income investors intuitively believe that a jump in the PPI can be a wake-up call that consumer price inflation is headed higher in the future. Second, since it is the first key inflation gauge the government puts out every month, the market tends to view it with greater sensitivity. If the PPI detects rising price pressures in the economy, it could depress bond prices and force interest rates higher. No change, or an actual decline in producer prices, is viewed favorably by bond holders because it suggests the absence of any troublesome inflation.
For the most part, equities respond much the same way bonds do to signs of inflation. A jump in the PPI means higher production costs for companies, and this can erode profits and endanger dividends. Although some stock investors argue that a little inflation is a good thing because it allows producers to charge more for goods, which bolsters revenues, there is a point beyond which inflation pressures can do more harm than good to equities. The problem is that there is no consensus on where that threshold is.
A rise in the PPI is a tough call for participants in the foreign exchange market. Normally, the dollar benefits from a little pickup in inflation, since this propels U.S. short-term interest rates higher. A fast-rising inflation report, however, can hurt the dollar, because the Federal Reserve can respond so aggressively as to jeopardize U.S. economic growth altogether. By and large, a gradual rise in inflation that is accompanied by a well-timed tightening of monetary policy is likely to lead to an appreciation of U.S. currency.”
Bernard Baumohl. The Secrets of Economic Indicators