The PPI rose .04% for the month, surging upwards by 11.3% year over year, according to the PPI for June, the most recent data available. Economists had forecast the rise would be 0.8% monthly, and only 10.7% annually. Measured by the U.S. Bureau of Labor Statistics (BLS), this data is one of the metrics the market looks to in determining the overall market’s health.
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.
On the heels of the shocking CPI (consumer price index) which surged to 9.1% yesterday to yet another new 40-year high in inflation.
In anticipation of a spike in the PPI, combined with President Biden’s visit overseas today, the DOW Futures (pre-market trading) was down over 400 points at the time of the release of the new PPI numbers.
Analysts now firmly expect that the Federal Reserve (the Fed) will implement a full point rate hike in coming weeks to fight inflation – quantitative tightening is a standard reaction to too many dollars chasing too few goods.
Average mortgage rates have already jumped from 5.0% to 5.8%, applying pressure to the housing market, and that rate is expected to continue to rise this year, especially in light of the extremely likely Fed rate hike(s).
The silver lining of this report, and the only silver lining in the report, is that the prices of lumber improved, which the new home construction sector desperately needs in order to add more units to accommodate continued pressure on inventory levels.
The final data points this week in taking the pulse of the economy are jobs and energy numbers tomorrow, but with even worse than expected CPI and PPI reports, there is not much optimism among analysts that any of this week’s data will point anywhere but recession territory.
There is now a growing debate regarding whether or not we are in a recession, what the method is for recovery, and what policies should be implemented to end the surge in inflation. The contentious question this week is – have we peaked? It still doesn’t appear that a true consensus is upon us.