Another pivotal inflation indicator is poised to capture market attention this Thursday, as the Bureau of Labor Statistics will release of the Producer Price Index (PPI) report for February.

On the consumer front, inflation nudged upwards to 3.2% year-on-year last month, defying expectations of a stable 3.1% rate. Core inflation, which excludes volatile energy and food prices, also surpassed forecasts, registering at 3.8% year-on-year compared to an anticipated drop to 3.7%.

Despite the unexpectedly robust inflation data, market momentum persists as traders maintain unwavering expectations of forthcoming interest rate cuts, assigning a 65% probability of a cut by June as per CME Group’s FedWatch.

Thursday’s release of the PPI report will be closely watched as market participants seek clarity on the direction of inflationary pressures, particularly from the standpoint of producers.

The PPI report will play a crucial role in shaping expectations regarding Fed’s rate cut adjustments going forward and will represent the last piece of inflation data ahead of next week’s Federal Open Market Committee (FOMC) meeting.

February’s PPI Report: What Do Economists Expect?

• The consensus among Wall Street economists estimates a 0.3% monthly surge in the PPI index for February 2024, matching January’s advance.
• On an annual basis, producer prices are expected to surge by 1.1%, up from the previous 0.9% rate.
• When excluding energy and food items, the core PPI is expected to inch 0.2% up from a month earlier, decelerating from the 0.5% pace seen in January.
• In annual terms, core producer prices are forecasted to slightly ease from 2% in January to 1.9% in February.

Stocks Fell On A Stronger Than Expected January’s PPI Report

Markets negatively reacted to January’s PPI report, published on Feb. 16, 2024, as producer prices rose more than expected.

In January 2024, the headline PPI index saw a 0.3% month-over-month acceleration, marking the largest uptick in five months and surpassing the anticipated 0.1%. What probably unsettled traders was the core PPI prices’ 0.5% monthly surge, significantly exceeding market forecasts of a 0.1% increase.

The perception that the increase in producer prices could eventually result in higher consumer prices drove the negative market reaction, potentially prompting the Fed to contemplate keeping rates high for longer to mitigate the resurgence in price pressures.

The SPDR S&P 500 ETF Trust SPY fell 0.5%, while the tech-heavy Invesco QQQ Trust QQQ underperformed, declining by 0.9%. Small caps, as tracked by the iShares Russell 2000 ETF IWM, shed 1.4% on the session.

Among Magnificent Seven stocks, Meta Platforms Inc. META was the laggard, down 2.2%, followed by Alphabet Inc. GOOGL, down 1.6%, according to Benzinga Pro data.

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