February PPI may continue to push against Fed rate cuts ahead of March policy meeting
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With the February Consumer Price Index (CPI) comes out hotter than expected, Wall Street is already looking towards the producer price index (PPI), which will be published on Thursday, March 14: Will the stock market crash?
Well maybe.
The February CPI has arrived worse than expected On Tuesday, prices rose 0.4%, contributing to year-over-year inflation of 3.2%, higher than projections of 3.1%. This essentially confirms what economists had begun to suspect after January's also high CPI: disinflation is slowing.
While this should have been a bearish indicator, shares rose on Tuesday. In fact, the S&P 500 and Nasdaq Composite posted gains of around 1% and 1.2%, respectively, on the day.
As such, while the PPI may well exacerbate concerns that price growth is proving more resilient than many expected, it may not yet have a direct or significant effect on equity markets.
If you recall, wholesale prices rose more than expected in the January PPI report released last month. In fact, wholesale prices rose 0.3% in the first month of the year, the biggest jump since August 2023. Economists expected an increase of 0.1%, after the 0.2% drop in the PPI in December .
The core PPI, which excludes the volatile food and energy categories, rose 0.5% last month, compared with projections for a 0.1% rise. Excluding food, energy and commercial services, the PPI rose 0.6%, the largest monthly jump since January 2023.
While the CPI measures consumer prices, the PPI measures changes in wholesale prices paid by producers of goods. Large changes in production costs tend to be passed on to consumers, so the indicator remains an important determinant of the state and trajectory of inflation.
Will the stock market crash?
As always, the problem with persistent inflation (apart from everything being more expensive) is that it reduces the central bank's likelihood of cutting interest rates. In fact, Powell has repeatedly warned that Fed members want to see more evidence of disinflation before stepping off the accelerator. As it is, the CME FedWatch Tool only prices with a 1% chance that the central bank will cut rates at next week's monetary policy meeting.
High interest rates generally serve to slow economic growth, unemployment, consumer spending and, therefore, inflation. It is for this reason that stocks often suffer when inflation does not meet expectations.
Despite this, the labor market and consumer spending have remained relatively strong, while inflation has slowed substantially from its peak in mid-2022. However, recent inflation data suggests that inflation growth Prices will not continue to slow as rapidly as they did for most of last year.
However, it remains to be seen whether this week's PPI will push stocks lower this week.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com. Publication Guidelines.
