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Zdjęcie autoraJarosław Jamka

PPI review / CPI preview

After all, PPI inflation, despite initially some hot headlines, turned out to be less scary at the end of the day and in fact we had a positive market reaction - which we have not had for many months in the case of PPI and CPI inflation releases (Figure 1). Yields of 10-year bonds fell by 5 bps from the PPI release until the end of the day... and shares (S&P500) rose by 0.5% at the end of the session to new highs (counting from the April lows). Today we see a further decline in the yields.



PPI inflation measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction.


PPI is strongly correlated with CPI - see Figure 2, but there are also significant differences in the composition of the indices. PPI doesn't measure housing prices/costs, and in the case of CPI it is as much as 1/3 of the entire basket (Shelter). Shelter inflation may drop significantly in the coming months and could even subtract up to 1 percentage point from the headline YoY CPI (detailed analysis here).



PPI includes export prices and does not include import prices. Yet, CPI measures prices of imported goods. There is also a big difference in healthcare services as PPI includes third-party reimbursements. In the case of PPI health services it is about 17%, and in the case of CPI medical care has a weight of only some 8%.


What the market expects from today's CPI inflation:


Headline CPI MoM change +0.37%, core CPI +0.30%


And


Headline CPI YoY change +3.40%, core CPI +3.60%


A possible positive surprise may show up in the Shelter inflation... see Figure 3. A monthly change of 0.35% could be quite well received by the market.



Bonus chart – yesterday we got the results of the NFIB small biz survey on future pricing plans… and net percent of those planning to raise selling prices in the next 3 month dropped from 33% to 26% - see Figure 4.



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