The producer price index (PPI) decreased by 0.5% in July compared to June, according to the U.S. Bureau of Labor and Statistics (BLS), even more than the 0.2% decrease expected by economic forecasters. Year over year, the PPI rose 9.8% and while that number is shocking, it is still substantially better than last month’s jarring 11.3% annual spike.
The PPI is the producer price index, which measures the average changes in prices domestic producers’ products being output – it’s the cost of goods before they reach consumers – this wholesale inflation data is a leading indicator used to forecast upcoming months and is one of the metrics the market looks to in determining the overall market’s health.
The PPI eased slightly as fuel prices declined as a result of demand on gas dropping in response to historic price spikes this summer and this data comes on the heels of the passage of H.R. (the Inflation Reduction Act).
Wages are not keeping up with inflation, applying pressure to the middle class and although jobs numbers are looking good, the participation rate continues to hover around the 60% mark.
The Federal Reserve next meets in September, and the question now is how aggressive their rate hikes will be – quantitative tightening is a standard reaction to too many dollars chasing too few goods. It is what all economists expect the Fed will do, but there is no consistent forecast as to how high interest rates will be increased.
Contention remains around the topic of recession with one camp sticking to the traditional definition of two quarters of negative GDP numbers, and the other camp pointing out that such positive jobs numbers and an easing CPI means that we are not in a recession.
Regardless of what the economic climate is called, the Fed will increase rates and separately, international geopolitics will remain heated.