Driven by rising energy and food prices, U.S. PPI rebounded more than expected in February, relaying on CPI to continue to suppress interest rate cut expectations. As the last inflation data before the Federal Reserve's March resolution, the February PPI data further proves that inflation is still high and the road to fighting inflation is bumpy, providing basis for the Federal Reserve's stance that it is "in no hurry to cut interest rates."
On Thursday, March 14, data from the U.S. Department of Labor showed that the U.S. PPI increased more than expected in February, rising 1.6% year-on-year, compared with the previous value of 1.2%, far exceeding the expected 0.9%; PPI accelerated month-on-month growth by 0.6%, which was expected. Double the previous value of 0.3%.
The core PPI, excluding food and energy prices, rose 2% year-on-year, unchanged from the previous value, exceeding expectations of 1.9%. The core PPI rose 0.3% month-on-month, and the growth rate was lower than the expected 0.5%, but it accelerated from 0.2% last month.
PPI for goods and services both rose, with energy prices being the main driver
The PPI final commodity demand index rose 1.2% month-on-month in February, the largest increase since August last year. One-third of the increase can be attributed to rising gasoline prices. In addition, diesel, eggs, aviation fuel, beef and tobacco products The price has also increased. The final goods demand index, which excludes food and energy prices, rose 0.3%.
In February, the PPI final service demand index increased for the third consecutive month, up 0.3%, of which transportation and warehousing service prices increased by 0.9%. The final services demand index, which excludes trade, transportation and warehousing prices, rose 0.5% month-on-month.
Looking at the sub-item price index, high energy prices were the main reason for the unexpected rebound in PPI in February. The price index rose by 4.4% month-on-month, contributing to about 70% of the increase in commodity PPI in February.
It is worth noting that February PPI will be the last inflation data before the Fed’s March decision. Federal Reserve Chairman Jerome Powell has said that although the Fed has the possibility of cutting interest rates this year, it must wait until there is more evidence that inflation has indeed fallen back to its 2% target level before doing so.
In addition, in terms of other sub-price indexes, portfolio management prices increased by 0.2%, a sharp decline from the previous month. Hospital outpatient prices increased by 0.5%, and prices paid to manufacturers for goods rose by 1.2%, the first increase in five months.
Financial blog ZeroHedge pointed out that it is necessary to focus on the sub-indicators that are also included in the core PCE data. One of the most critical indicators is the price of portfolio management, which tends to lag one month behind the stock price. ZeroHedge pointed out that although the weight of this sub-price is only about 1.6%, it pushed up the core PCE in January by a significant increase of about 0.08%.
Market Reaction
After the data was released, the U.S. dollar index rose by about 10 points in the short term and then fell back, with the lowest reading at 102.97.
U.S. bond yields continued to rise, with the U.S. 10-year Treasury bond yield rising about 5 basis points to 4.239%.
U.S. stock futures maintained a slight rise, with S&P 500 futures up 0.13%, Dow futures up 0.27%, and Nasdaq 100 futures up 0.16%.
Markets still believe the Fed will cut interest rates in June
Traders in the federal funds futures market see a 59.7% chance that the FOMC will begin cutting interest rates in June, compared with a reading of 58.2% before the PPI data was released, according to the CME Group's FedWatch tool.
