‘Peak Inflation’ Narrative Gets Another Big Boost

Let the celebration continue.

Days after a cooler-than-expected US CPI report triggered a spectacular rally on Wall Street, producer price figures for October printed well below consensus, in what was sure to be viewed by market participants as additional evidence of peak inflation.

PPI for final demand rose just 0.2% MoM, data out Tuesday showed. That was just half the expected increase (figure below).

In addition, September’s monthly print was revised markedly lower. Excluding food and energy, final demand prices were unchanged in October. Consensus expected a 0.3% increase.

The YoY prints were very favorable, assuming you acknowledge that “favorable” remains a highly relative term when it comes to inflation realities.

On a 12-month, unadjusted basis, headline PPI printed an 8% increase, the coolest since July of 2021 (figure below).

Excluding food and energy, the YoY increase was 6.7%, far below the 7.2% gain economists forecast. Less food, energy and trade, the YoY print was 5.4%, the slowest pace in 18 months.

With the caveat that nothing’s “safe” in the current macro environment, it’s probably some semblance of safe to say that peak inflation is behind us. Or at least in the US.

Yes, consumer inflation expectations did rise in both the preliminary vintage of the University of Michigan survey for November and in the NY Fed survey, but the hard data is getting softer, and leading indicators suggest that’s likely to continue, notwithstanding what’s sure to be a lengthy period of very elevated shelter inflation in the CPI series.

Notably, prices for final demand services moved lower in October from September. It was the first decline since November of 2020 (figure below).

The final demand goods gauge rose 0.6%, the biggest monthly advance since June. That was attributable to a sizable increase on the energy gauge. The food index posted a 0.5% MoM increase, not especially pronounced as far as 2022 prints go on that series.

“Overall, another downside surprise that reinforces the peak inflation narrative and offers evidence that the Fed’s efforts to combat inflation are increasingly effective,” BMO’s Ian Lyngen said.

“I’m all out of superlatives to describe the scale of the cross-asset momentum shocks experienced since the light MoM core CPI print Thursday,” Nomura’s Charlie McElligott remarked, adding that the attendant stop-outs and de-grossing could conceivably accelerate following the PPI data, which he described as building on the “dovish relief” story.