PPI Report Preview: Will September's Producer Prices Echo August's Startling Surge?

On Wednesday, the Bureau of Labor Statistics is set to unveil the eagerly awaited Producer Price Index (PPI) report for September, a day before the widely-followed Consumer Price Index (CPI) report.

Both the PPI and the CPI constitute the final two crucial economic indicators leading up to the Federal Open Market Committee Meeting scheduled for Oct.31-Nov. 1.

For this reason, they hold heightened importance as investors assess monetary policy outlook.

In August, producer prices surged by 0.7% month-on-month, marking their highest increase since June 2022, a substantial leap compared to market expectations of a 0.4% increase. This was mainly driven by a remarkable 10.4% spike in energy costs during the same month. Excluding volatile components like food and energy, the “core” producer price index grew by 0.2% in August, slowing down from the 0.4% increase observed in July.

Also Read: Dan Niles Expects ‘Beat And Raise Quarters’ From Nvidia, Google, But He’s Short Apple, Tesla: Here’s Why

PPI Report: What Are Economists Anticipating For September 2023?

• Economists foresee a more modest 0.3% month-on-month increase in the PPI for September, marking a deceleration from the robust 0.7% rise witnessed in August. Nonetheless, this projection remains higher than the six-month average of 0.1% month-on-month.

• On an annual basis, the headline PPI is expected to hold steady at 1.6%, mirroring the figure seen in August.

• Meanwhile, the core PPI is projected to advance by 0.2%, maintaining the same growth rate seen in August.

• On an annual basis, the core PPI is expected to land at 2.3%, a slight uptick from the 2.2% recorded in August.

How Did Markets Respond To Previous PPI Report?

The August PPI report, released on Sept. 14, garnered an overall favorable market response. Investors interpreted the higher-than-expected reading as a consequence of a temporary surge in energy costs rather than more structural price pressures.

The SPDR S&P 500 ETF Trust SPY rose by 0.9%, while the technology-heavy Invesco QQQ Trust QQQ gained 0.8%.

Cyclical sectors outperformed defensive ones, with the Energy Select Sector SPDR Fund XLE, the Industrials Select Sector SPDR Fund XLI, and the Financial Select Sector SPDR Fund XLF all posting gains of approximately 1%.

In the forex market, the U.S. dollar strengthened, with the U.S. Dollar Index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rising by 0.5%.

Conversely, bonds experienced a decline as Treasury yields rose, with the iShares 20+ Year Treasury Bond ETF TLT falling by 0.7%.

Bitcoin BTC/USD also exhibited positive performance, surging by 1.1%.

Now read: IMF Forecasts Robust US Economic Growth, But Warns Of Rising Government Debt

Photo: Shutterstock