Producer Price Index Preview: What To Watch For Thursday Morning, Plus What It Means For The Fed

The SPDR S&P 500 SPY is trading higher Wednesday after CPI data came in below average economist estimates, a potential sign that inflation may be coming down fast enough for the Federal Reserve to pause in its fight against inflation. PPI should help to paint a clearer picture.

What To Know: The Labor Department is set to release producer price index (PPI) data for March at 8:30 a.m. ET on Thursday. 

In February, PPI fell 0.1%, which was down from a 0.3% increase in January and below economist estimates for a 0.3% gain. Now economists are expecting a 0.1% increase, and another cooler-than-expected PPI print could help confirm recent CPI data. 

The headline CPI for March came in at 5% year-over-year on Wednesday, which was down from 6% in February and below economist forecasts of 5.2%. Core CPI came in as expected at 5.6%.

PPI measures prices at the wholesale level while CPI measures the prices that consumers pay.

Related Link: US Inflation Rate Slows More Than Predicted In March: Markets Rally As The End Of Fed Hike Cycle Looms

Why It Matters: The Fed is due to make its next decision on rates in early May before CPI and PPI for April is released, so this will be the last look at CPI and PPI pricing data the Fed will get to see before making its next move.

The market is projecting a 73.2% chance of another 0.25% rate hike next month and a 26.8% chance of a pause, according to the CME Group's FedWatch tool. 

At the Fed's last meeting, the committee said it no longer sees "ongoing increases" as appropriate and instead chose to say that some "firming" may be needed. But the market seems to think at least one more 0.25% rate hike is in the cards. 

The central bank has remained firmly committed to its 2% inflation goal and Fed Chair Jerome Powell has been steadfast in saying the committee will use all of the tools at its disposal to do so. 

"There are real costs to bringing it down to 2%, but the costs of failing are much higher," Powell said in a press conference following the Fed's last 0.25% rate hike.

SPY Price Action: The SPY was up 0.28% at $410.88 at the time of writing, according to Benzinga Pro.

Photo: Marcin from Pixabay.