PPI +9.7% Year Over Year; Markets Up on Russian Troop Drawdown

Tuesday, February 15, 2022

Inflation highs persist this morning, as the Producer Price Index (PPI) for January doubled expectations to +1.0% month over month — the second-highest all-time, following the +1.2% posted exactly one year ago, for January 2021. This follows a much more temperate December headline of +0.2%.

The “core” read — stripping out volatile food and energy prices — came in at +0.8%, ahead of expectations and just 20 basis points from the +1.0% all-time high posted in July of ’21. Minus food, energy and trade costs, this numbers goes to +0.9%, more than double the +0.4% anticipated. This all-time high was reached in January ’21, at +1.0%.

Year over year is where economists really got spooked last week when the sister-report to PPI, the Consumer Price Index (CPI), posted +7.5% growth — the highest we’d seen in 40 years. This time around, we see a year-over-year headline of +9.7%, a tick down from November ’21’s all-time high +9.8%. The core read came in at +8.3%, and ex-food, energy and trade posted its third-straight month of +6.9%, equaling the all-time high.

In case we were starting to believe that inflation had already peaked and is now on the wane, this morning’s PPI and last week’s CPI figures slap us back to reality a bit. Not that we may not be peaking this very instant — it’s possible — but until the data shows us coming down the parabolic curve, this is nothing to assume. Inflation is real, it’s persistent and it is large. Odds of a 50-basis-point hike at the March Fed meeting now looks more and more like a done deal.

Countering these hot inflation numbers, the February print on Empire State Manufacturing came out this morning, disappointing to the downside: +3.1 versus and expected +11. It does come off the lowest-ever -0.7 posted for January of this year, so it’s a good start getting back into positive territory. But analysts were looking for a sharper snap-back, and so far they haven’t gotten it.

Pre-market indexes are still well into the green, however, as the tensions on the Ukraine border are easing a bit this morning. Some Russian troops are reportedly backing off the front line; the buildup of troops just outside Ukraine had ratcheted up anxiety not only in the former Soviet neighbors, but in global stock markets as well. While it’s tough to take cues from what Russia seems to be telling the world, it’s a sigh of relief that events aren’t currently going in the opposite direction.

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