Producer Inflation Rises More Than Expected In October: Should Traders Rethink Interest Rate Cut Path?

Producer inflation in October came slightly higher than anticipated Thursday, casting doubts on whether the U.S. economy's broader disinflationary trend will hold through the year’s final quarter.

Compared to October 2023, the Producer Price Index (PPI) surged to 2.4% last month, up from upwardly revised 1.9% and surpassing projections of 2.3% as tracked by TradingEconomics data. It marks the first increase in the annual PPI inflation rate after three straight months of declines.

On a monthly basis, the PPI for final demand increased by 0.2%, accelerating the previous 0.1% reading and matching economic estimates of 0.2%.

When excluding energy and food items, core PPI was up by 0.3% from a month earlier, accelerating from the previous 0.2% but matching estimates. On an annual basis, core PPI surged from 2.8% to 3.1%, topping expectations of 3%, marking the third straight month of gains.

“Over one-third of the rise in the index for final demand services can be traced to prices for portfolio management, which advanced 3.6%,” the Bureau of Labor Statistics said.

On Wednesday, consumer inflation data also showed an increase in October, matching expectations.

Prior to Thursday’s PPI report, traders assigned a 79% of chance on a 25-basis-point rate cut in December.

Jobless Claims Below Expectations

Concurrently, unemployment claims rose by 217,000 in the week ending Nov. 9, down from the previous 221,000 and below estimates of 223,000.

Continuing claims fell to 1.873 million, down from 1.892 million and below the predicted 1.88 million.

Market Reactions

Interest rate futures showed no major reactions following Thursday’s data releases, with speculators assigning a 77% chance of a 0.25% cut in December, as per CME FedWatch Tool.

The higher-than-expected PPI report pushed Treasury yields slightly higher, with the 10-year yield reaching 4.48%.

The dollar continued to hammer all other currencies, with the U.S. Dollar Index (DXY) – as tracked by the Invesco DB USD Index Bullish Fund ETF UUP – strengthening to levels last seen in October 2023. The greenback is also on track for a fifth straight session of gains.

U.S. equity futures were mostly flat at 8:50 a.m. in New York.

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