On Tuesday the markets were treated to a pre CPI surprise in form of a PPI that was mildly cool.
The rise in producer prices was 0.2% for December. That’s a little less than analysts expected, who had forecast a 0.4% gain. In December, the core producer price index, excluding energy and food, was flat compared to November.
It sets up the CPI report tomorrow, scheduled for publication at 8:30am ET. Analysts cautioned investors to not take a cold reading as an indication of future rate reductions.
“We’ve seen a stubbornness in inflation over the last few quarters, causing investors to wonder whether the Fed jumped the gun by cutting rates by 100 basis points in the second half of last year,” eToro US investment analyst Brett Kenwell said. “A strong monthly jobs report and a strong ISM services report didn’t help matters, although they do point to a strong economic foundation.”
Reminder: Analysts are predicting that the CPI headline will be at 2,9% per year, up from last November’s reading of 2.7% for the 12-month period. For the year ended December, analysts expect that core CPI will remain at 3,3%.
Today’s PPI slightly increased the odds that a 25bps rate reduction will occur in March. Fed funds Futures now price in 21.6% of a possible cut. That’s up from 19.4% just a day earlier.
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