Announced this morning, the Producer Price Index, a measure of what companies pay for their input costs, was flat in September, less than expected and has increased 1.8% on an annual basis. The core rate, which excludes prices for food and energy increased 0.2% in September, as expected, and grew 2.8% on an annual basis which is higher than the previous month.
Overall, headline producer prices were a bit cooler in September, while the core rate was as expected. On an annual basis the headline rate is below 2%, but the core rate is above that level and higher than the previous month, hinting that a small level of inflationary pressure may still be present in the system. Coupling these results with a slightly higher than expected core CPI yesterday the Federal Reserve will need to be thoughtful with upcoming rate reductions.
At the producer price level, higher costs for companies can lead to reduced earnings as well as management teams passing higher prices on to consumers. The dynamic of how companies handle these costs can depend on the level of demand for the company’s products as well as their financial strength. Considering hints of inflation may still be in the system, this dynamic will be something to watch in earnings results over the coming weeks. To start the season this morning, JP Morgan reported quarterly earnings and revenue that were above expectations as increases in credit card losses were offset by strength in other areas, including investment banking.
In all, the 10-year US Treasury yield is slightly higher following the report and equity futures are mixed as we head into the market open.
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