U.S producer prices increase for first time in three months

U.S. producer prices rose for the first time in three months amid a surge in gauges reflecting airfares and rail-transportation costs, a Labor Department report showed Wednesday in Washington.

HIGHLIGHTS OF PRODUCER PRICES (SEPTEMBER)

  • Producer-price index rose 0.2% m/m (matching est.) after a 0.1% drop in prior month; up 2.6% y/y (est. 2.7%) after 2.8% gain
  • Excluding food and energy, core gauge rose 0.2% m/m (matching est.); up 2.5% y/y (matching est.) after 2.3%
  • PPI excluding food, energy and trade services, a measure some economists prefer because it strips out the most volatile components, rose 0.4% m/m, most since Jan.; up 2.9% y/y, same as Aug.
  • Key Takeaways

    The monthly increase in the broad index stemmed partly from a 1.8 percent rise in transportation and warehousing services, a record in data back to 2009. That reflected a 5.5 percent jump in the category of airline passenger services, also a high in figures dating to 2009, while rail transportation of freight and mail was up 1.4 percent, the most since 2012.

    Overall, services prices increased 0.3 percent while the cost of goods fell 0.1 percent, reflecting declines in both food and energy. The decrease in goods prices was the first since May 2017.

    While the figures — which highlight wholesale and other selling prices at businesses — are less prominent in investors’ minds than the consumer price index out Thursday, they illustrate how changes in input costs are feeding into inflation. PPI reports have limited usefulness in predicting the monthly CPI reports, JPMorgan Chase & Co. economists said in a recent note.

    Amid trade tariffs and retaliatory levies, inflation pressures are being closely watched, particularly for signs of how likely they filter through production pipelines and on to businesses and consumers. Benchmark Treasury yields have climbed to multi- year highs this month amid investor expectations that the Federal Reserve will continue raising interest rates to the point of eventually restricting growth.

    Other Details

  • Energy prices fell 0.8 percent from the prior month, biggest drop since March; food costs dropped 0.6 percent, same decline as prior month
  • One-third of advance in final demand services stemmed from airline passenger services, which mostly reflects airfares
  • BLOOMBERG

    US Dollar Rout Continues With Inflation Data in the Horizon

    Safe haven flows after the stock market collapse favour JPY and CHF

    The US dollar is once again on the back foot on Tuesday. The currency is softer against major pairs ahead of key US inflation data for January. The U.S. Federal Reserve along with traders will be looking at the consumer price figures for signs of higher inflation and further validations of their plans to keep raising US interest rates in 2018. The U.S. non farm payrolls (NFP) report earlier in the month boosted the USD with a positive wage growth signal at 0.3 percent monthly gain. The market will be watching the core CPI released on Wednesday, February 14 at 8:30 am EST looking for confirmation.

    • US January inflation expected to underperform
    • US Oil producers putting downward pressure on prices
    • US inflation trend to continue on Thursday with the release of the PPI



    The EUR/USD gained 0.52 percent on Tuesday. The single currency is trading at 1.2355 ahead of the release of monthly inflation and retail sales data in the US. The U.S. Federal Reserve is expected to lift rates 3 or more times this year, but to do so it would need inflation in the US to pick up, as this was the biggest debate within the central bank last year. Doves within the Federal Open Market Committee (FOMC) are pushing for more patience, until inflation rises, while the hawks who lost Chair Yellen as their biggest supporter would rather raise rates sooner rather than later. The core consumer price index, the Fed pays more attention to this data point that excludes food and energy, is expected to come in at 0.2 percent. Retail sales are forecasted to have gained 0.2 percent in January, but the core reading to have advanced by 0.5 percent by removing auto sales.

    The tumble in stocks prices has had a negative effect on the confidence in the US economy. The employment report released on February 2 posted higher than forecasted number of jobs and more importantly hourly wages rose by 0.3 percent. Several dollar rallies that started with a strong employment report have been cut short by disappointing inflation and retail sales data. This time around the USD has not been able to find solid footing in 2018. With a stock market correction and bond yields at four year highs inflation takes a more important role as it could solidify the case of Fed hawks and make way for a 4 rate hike scenario. The USD has been impacted by improving growth around the globe and other central banks have hiked or signalled and end to low rates cutting the lead of the U.S. Federal Reserve and reducing the attractiveness of the dollar. A higher than expected inflation figure could trigger a US currency recovery alongside a drop in the stock market as higher rates would be forthcoming. Vice versa a lower than expected consumer price gain could sink the dollar even lower as the market is already pricing in 3 rate hikes and could start reevaluating that position with weak inflationary pressures.

    European politics have reached some stability with the German coalition now in place but with the upcoming Italian elections in March the boat is sure to rock. Economic fundamentals have been strong in the eurozone with Germany leading the way as usual. The gap between the U.S. Federal Reserve and the European Central Bank (ECB) is closing with regarding monetary policy. The ECB is expected to end its QE program and could even lift interest rates later this year. The week will bring minor indicator releases in Europe with the German central bank chief Jens Weidmann speaking in Frankfurt on Wednesday, February 14 at 3:00 am EST. Earlier that day the GDP figures for Germany will be released with a 0.6 percent growth expected.



    The USD/JPY lost 0.84 percent in the last 24 hours. The currency pair is trading at 107.73 as the JPY has benefited from risk aversion and risk appetite moves. Usually the USD is the main beneficiary of a risk aversion move, but given some of the global uncertainty is happening in Washington and Wall Street the greenback is not the sturdiest safe haven for investors. The USD is soft ahead of inflation and retail sales data with both having to overcome concerns.

    The Japanese Prime Minister Shinzo Abe is expected to reappoint Haruhiko Kuroda as the head of the Bank of Japan (BOJ) for his second term and that in itself could be a sign the central bank is ready to start dealing back some of its massive stimulus program.

    Market events to watch this week:

    Wednesday, February 14
    8:30am USD CPI m/m
    8:30am USD Core CPI m/m
    8:30am USD Core Retail Sales m/m
    8:30am USD Retail Sales m/m
    10:30am USD Crude Oil Inventories
    7:30pm AUD Employment Change
    Thursday, February 15
    8:30am USD PPI m/m
    Friday, February 16
    4:30am GBP Retail Sales m/m
    8:30am USD Building Permits

    *All times EDT
    For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar