What 9.7% PPI Inflation Means For Investors

The SPDR S&P 500 ETF Trust SPY traded higher Tuesday after the U.S. Labor Department reported a 9.7% increase in the producer price index in the month of January, far outpacing economist expectations.

The PPI climbed 1% compared to December, double the 0.5% monthly increase economists had expected. The 9.7% year-over-year growth is near the highest level for the PPI since 2010.

To calculate the CPI, the Bureau of Labor Statistics estimates what "urban consumers" spend out of their own pockets. It relies on the Census Bureau's Consumer Expenditure Survey and then samples roughly 23,000 stores and 50,000 landlords to determine product and rent prices.

So-called core PPI, which excludes food, energy and trade services, was up 6.9% in January, slightly below a record 7% in December.

The latest PPI numbers come after the labor department reported a 7.5% increase in the consumer price index in the month of January, the fastest inflation growth since 1982.

The Federal Reserve is likely closely monitoring both key inflation levels ahead of its highly anticipated March meeting.

Related Link: 'Another Surprise Jump': Experts React To 7.5% CPI Inflation, Highest Since 1982

Voices From The Street: Lindsey Bell, Ally Financial Inc ALLY chief markets and money strategist, said the de-escalation of tensions between Russia and Ukraine seems to have taken priority in the market over the surprisingly hot PPI numbers.

"The de-escalation between Russia and the Ukraine is welcome news, but inflation this hot suggests the Fed could kick-off their rate raising cycle with a 50 bps move," Bell said.

Bill Adams, chief economist for Comerica Bank, said the omicron COVID-19 variant likely played a role in the elevated January inflation.

"Even so, high inflation in stickier services prices demonstrates that the product and supply-chain specific explanations of inflation that seemed plausible in mid-2021 are now much less convincing," Adams said.

John Lynch, chief investment officer for Comerica Wealth Management, said investors have yet to get a clear indication that inflation is easing given price pressures are "gaining further momentum."

"This intensifies need for Fed to raise by 50 basis points in March to reestablish their inflation fighting credentials," Lynch said.