January Producer Price Index much higher than expected

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Published Date 2/16/2024

More bad news on inflation this morning, January PPI increased substantially. Month/month PPI expected +0.1% increased 0.3% and up from -0.1% in December. Year/year forecasts +0.7% increased 0,9% and up from 1.0% in December. Excluding food and energy (the core) month/month increased 0.5% against estimates of +0.1% and up from 0.0% in December; year/year core thought to be +1.7% increased 2.0%. Take out food and energy and trade services month/month +0.6% with estimates at +0.2%. The increase in PPI the highest reading over the last five months. Both January CPI and PPI were higher than forecasts, can pundits’ cool inflation readings with their comments today?

The reaction pushed rates higher, the 10 year at 4.34% +11 bps, 2 year 4.72% +14 bps. Initial reaction dropped MBS prices 33 bps from yesterday.

January housing starts and permits; also, not what we wanted to see. Starts were expected 1.470 million dropped to 1.331 million, revision from December 1.562 million up from 1.460 million originally reported. Building permits also weaker than forecasts at 1.470 million against forecasts of 1.510 million.

Last night Atlanta Fed Pres Bostic added his take, saying there is no rush to cut rates with the US labor market and economy still strong, and cautioned it’s not yet clear that inflation is heading sustainably to the central bank’s 2% target. “The evidence from data, our surveys, and our outreach says that victory is not clearly in hand and leaves me not yet comfortable that inflation is inexorably declining to our 2% objective, that may be true for some time, even if the January CPI report turns out to be an aberration.” Last month Bostic said he didn’t expect a rate cut until the 3rd quarter.

At 9:30 am the DJIA opened -58, NASDAQ +9, S&P -2. 10 year at 9:30 am 4.32% +9 bps. FNMA 6.0 30 year coupon at 9:30 am -35 bps from yesterday’s close and -35 bps from 9:30 am yesterday.

At 10 am February mid-month University of Michigan consumer sentiment index expected at 80 from 79 in January, sentiment increased to 79.6.

CPI reported on Tuesday, hotter than expected, sent the 10 year note higher; Wednesday the 10 and the rest of curve recovered on continued belief the Fed is prepared to lower rates, that was the headline, yesterday more improvement. Today the 10 is back to its high on Tuesday.

Markets will be closed Monday for President’s Day.

Source: TBWS

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