Producer price index data out Tuesday showed that inflation ran hotter in April, but downward revisions to earlier data assuaged concerns. Meanwhile, health care prices, the biggest input to the Federal Reserve’s primary core inflation rate, moderated a bit. After the PPI data, S&P 500 futures were little changed ahead of Wednesday’s key consumer price index and retail sales reports.
decisions on interest rates impact both the economy and the stock market. IBD News Editor Ed Carson shares how reactions by each can differ and what investors need to know.” vid-name=”Fed Interest Rate Decisions: Market Influence And Investor Psychology Impact Of Cuts And Hikes” vid-cat=”Industry Insights” vid-date=”03/20/2024″ vid-date-tmsp=”1710938202″ vid-image=”https://www.investors.com/wp-content/uploads/2024/03/cReAVOpP-640×360.jpg” vid-authors=”MEREDITH HEYMAN”>
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PPI Data
The PPI for final demand rose 0.5% on the month and 2.2% from a year ago. Wall Street economists anticipated a 0.2% monthly rise and a 2.2% gain from a year ago, according to Econoday.
The upside surprise on the monthly data but in-line annual increase implies downward revisions to prior data. The headline PPI for March was revised to -0.1% from 0.2%.
Excluding food and energy, the PPI rose 0.3% on the month vs. 0.2% forecasts. However, March data also was revised to -0.1% from 0.2%.
Impact On Key Fed Inflation Rate
The PPI’s broad measure of health care services prices rose 0.266% on the month, unadjusted for seasonal effects. The 12-month measure of health care services inflation eased to 2.9% vs. the initially reported 3.1% in March.
The health care data is among several PPI components that feed into PCE price index data, which the Fed uses to gauge how inflation compares to its 2% target.
Airline passenger services prices, which also feed into the PCE price index, fell 3.8% in April, providing more good news for the Fed’s key inflation rate.
However, portfolio management fees, which usually rise and fall with the stock market with a slight lag, rose a surprising 3.9% in April.
CPI Preview
Consumer price index data for April is expected to show a 0.3% monthly increase, lowering the 12-month headline inflation rate to 3.4%.
The core CPI, excluding food and energy, is seen rising 0.3%, moderating a bit after increases of 0.4% in each of the year’s first three months. The 12-month core inflation rate is expected to dip to 3.6% from 3.8%.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a preview that he expects a 0.35% rise for the core CPI. Based on core PPI expectations, that should translate to a 0.26% rise for the core PCE price index, which is released near the end of the month.
The Fed “probably needs to see a couple of prints near 0.2% before it will press ahead with the first rate cut,” Shepherdson wrote. In his view, it would take a substantial downside surprise for Fed rate-cut odds to shift markedly.
Fed Rate-Cut Odds
Ahead of the PPI, markets were pricing in 31% odds that the Fed’s first quarter-point rate cut will come by the July 31 meeting. Odds of a rate cut occurring by the Fed’s Sept. 18 meeting stood at 64%.
S&P 500
S&P 500 futures inched down less than 0.1% after the PPI data. On Monday, the S&P 500 finished a hair below the flat line. Last week, the S&P 500 rallied 1.85%, powering back above its 50-day moving average.
The S&P 500 is just 0.6% below its all-time closing high on March 28.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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