Announced this morning, the Producer Price Index (PPI), which measures costs faced by companies that produce products and services rather than costs the consumer bears, increased 0.3% in July, slightly higher than expected and has increased 0.8% on an annual basis. The core PPI, which excludes food and energy prices, also increased 0.3% in July, higher than expected and is up 2.4% on an annual basis.
Overall, slightly higher monthly increases in both headline and core producer prices in July. While some price increases in the PPI do not reach consumers as they are absorbed by other parts of the system, the trend in producer prices still remains important for consumers. Meanwhile, there was a hint of disinflation in yesterday’s report on the Consumer Price Index which was less than expected but still increasing. With producer prices trending higher on a monthly basis and core inflation at the consumer level remains elevated, the Federal Reserve is likely to keep monetary policy levels tight. The impact of this continued policy on the labor market, consumer spending, and company earnings will be closely watched in the weeks ahead.
In all, the yield on the U.S. 10-year treasury ticks higher and equity futures are lower as we head into the market open.
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