The US Bureau of Labor Statistics reported today that the producer price index for final demand remained unchanged in September, after adjusting seasonally. Final demand prices rose 0.2 percent in August and were unchanged in July. On an unadjusted basis, the final demand index rose 1.8 percent during the twelve months ending in September.
Within final demand in September, a 0.2 percent increase in the final demand services index offset a 0.2 percent decline in prices of final ordered goods.
The final demand index excluding food, energy and commercial services rose 0.1 percent in September after rising 0.2 percent in August. During the twelve months ending September, final demand prices excluding food, energy and commercial services increased by 3.2 percent.
Final Order Services: Final Order Services Index up 0.2% in September
After rising 0.4% in August. With the broad-based increase in September, prices of final demand services excluding trade, transport and storage rose 0.1%. Trade services indices for final demand and transportation and warehousing services for final demand increased by 0.2% and 0.3% respectively. (Trade indices measure changes in margins received by wholesalers and retailers
Product Details: A 3.0% rise in the depository services index (partially) was a major factor in the rise in final order services prices in September. Wholesale machinery and vehicle trade, furniture retail, desktop and mobile application software deployment, clothing wholesale trade, and aircraft passenger services also rose. Conversely, wholesale margins for professional and commercial equipment fell by 6.3 per cent. Securities brokerage, trading, investment advisory, related services, and consumer loans also declined (partially).
Overview of the core PPI and its impact
The month-to-month core producer price index (PPI) (m/m) is a critical economic indicator that measures the average change in the selling prices that domestic producers receive for their production, excluding food and energy prices. Here is an overview of the core PPI:
- Definition
- Core PPI: The core PPI focuses on changes in the prices of goods and services produced in the economy, excluding the most volatile categories of food and energy. This metric provides a clearer view of inflation trends at the wholesale level.
- Month-to-month measurement: The monthly change in the core PPI reflects the percentage change in prices from month to month, allowing analysts to monitor short-term trends in producer prices.
- Importance
- Inflation Index: The core PPI is a key measure of inflation at the wholesale level. A higher core PPI indicates increased costs for producers
- Economic Health: It serves as an indicator of economic health, as rising producer prices can indicate increased demand and potential economic expansion.
- Ingredients
- Items covered: The core PPI includes different categories of goods and services, such as:
- Manufacturing
- Construction
- Market Impact
- Currency markets: An unexpected increase in the core PPI can lead to speculation about future inflation and higher interest rates, often leading to a strengthening of the currency (for example, the US dollar). Conversely, a lower-than-expected figure could weaken the currency.
- Bond markets: A rise in the core PPI could lead to higher bond yields, as investors may demand larger yields to compensate for expected inflation.
- Correlation with other indicators
Consumer Price Index (CPI): The core producer price index often serves as the main indicator of the core consumer price index. Higher producer prices may eventually lead to higher consumer prices.
How does the core PPI affect traders’ decisions?
The US Core Producer Price Index (M/M) is an important economic indicator used by traders to measure wholesale inflation. It measures the change in the prices of goods and services sold by producers, excluding food and energy, on a monthly basis. Here’s how traders use the core producer price index (M/M) to make decisions:
- Inflation expectations
The core producer price index (M/M) provides insight into future consumer inflation, where higher producer costs can be passed on to consumers. When the PPI rises more than expected, it signals higher inflation, leading traders to anticipate possible changes in monetary policy (e.g., interest rate hikes).
- Impact on interest rates
Central banks such as the Fed are keeping a close eye on inflation data. If the core PPI shows flat inflationary pressures, traders may expect the Fed to adopt a tighter stance, leading to higher interest rates. This affects the forex market, causing the US dollar to strengthen due to higher interest rate expectations.
- Market sentiment
Higher-than-expected core PPI data usually triggers a negative reaction in the stock market.
as rising inflation erodes corporate profits and may lead to higher borrowing costs. Conversely, a lower-than-expected core PPI can boost stock prices by reducing inflation concerns.
- Forex Market Impact
– The US dollar often reacts strongly to the releases of the core PPI. If the data is higher than expected, traders may expect a tougher monetary policy, making the dollar more attractive, while a lower figure may weaken the dollar.
- Bond Market
– Traders in the bond market are keeping a close eye on the core PPI.
as higher inflation data depreciates fixed-income securities.
