US producer price inflation cooled a bit in February, good news, even as it’ll doubtlessly be dismissed as stale considering the potential for the recent surge in commodity prices to impact the data going forward.
The headline YoY PPI print was a harrowing 10%, in line with estimates, but the monthly gain (0.8%) was slightly cooler than the 0.9% increase consensus expected.
Ex food and energy, PPI rose just 0.2% MoM, far less than the 0.6% advance economists forecast (figure below).
The core YoY print was considerably below estimates at 8.4% versus 8.7% expected.
In a foreboding, albeit unsurprising, development, prices for final demand goods rose 2.4% last month, the largest increase in history (figure below). The majority of that (some two-thirds) was attributable to an 8.2% jump in the gauge for final demand energy.
“Nearly 40% of the February increase in prices for final demand goods can be attributed to the index for gasoline, which rose 14.8%,” the government said Tuesday, noting that prices also rose for diesel fuel, electric power, jet fuel, motor vehicles and equipment.
The data came on the heels of a very concerning CPI report and amid rampant worries that rising food and energy costs are set to undermine consumer sentiment further, possibly pushing the world’s largest economy into a technical recession at some point over the next 12 months.
Mercifully, prices for final demand services were unchanged in February, welcome news following gains of 1%, 0.7% and 1% over the preceding three months.
There’s “still ample inflation in the system, consistent with the Fed’s liftoff ambitions,” BMO’s Ian Lyngen remarked, following the data.
Meanwhile, Empire manufacturing was woefully short of the mark for March. At -11.8, the headline gauge missed the lowest estimate by a country mile, and was nowhere near consensus (6.4).
It was the second large decline in three months. The general business conditions index now sits at the lowest since May of 2020 (figure above).
New orders plunged, shipments fell and inventories rose. There was no relief on the price gauges. “The prices paid index remained very elevated, and the prices received index reached yet another record high,” the New York Fed said.
Although firms were “generally optimistic” about the medium-term outlook, the very poor headline print and lack of moderation in inflation proxies was a worrying sign, as was the lowest read on the employment index since August.
As I put it Sunday, “a miss [on the Empire gauge] wouldn’t do much to move markets, but it could be an ‘insult to injury’ moment in the event the survey serves up incremental evidence to support the stagflation narrative.” That’s precisely what the index showed.
All in all, Tuesday’s data perhaps helped make the case for less aggressive policy tightening, but the takeaway, from my perspective, is that growth is decelerating and price pressures are persistent. Again: There’s a name for that conjuncture.
I mentioned this before, but commodities are pulling back hard. Oil has roundtripped the Russian invasion spike, as have broader commodity price measures, although selected charts are still hanging on to some gains – TTF Dutch NG, W00 wheat, JKM Jpn/Kor LNG, etc. Not sure what this is saying about trader expectations. Thoughts about these cmdty moves, anyone? Suggests PPI peaking Mar and to ease April? Presumably PPI and CPI will diverge due to shelter component.
Meanwhile, KSA “deciding” whether to price some oil sales in yuan.
H-Man, you didn’t mention China is shutting down due to Covid. Another slap in the face that actually may be a punch. China checks out on production, everything turns into molasses. A really slow grind.