The recent release of the US Producer Price Index (PPI) has sent shockwaves through domestic markets. This was due in part to unexpected producer price growth indicating inflationary pressure for the month of August. The core index, which strips out raw materials and energy, was even more aggressive, up 0.9% month-over-month and 3.7% year-over-year. Growth last month was actually zero. Our July CPI core index showed a 0.0% change month-over-month, but it did have a 2.6% increase year-over-year.
Producer prices jumped 0.9% last month, up sharply after avoiding any monthly change in the prior month. This unexpected jump has forced analysts to reconsider their inflation forecasts. On a monthly basis, annual inflation jumped from 2.4% to 3.3%, well above forecasts that expected inflation to increase to just 2.5%. Economists had been looking for a slight increase of 0.2% in PPI on a month-over-month basis. So, the reality proved to be an unexpected plot twist.
The surprising data have changed the prospects monetary policy – and with it, the entire market sentiment. We’ll be watching very closely next week as Federal Reserve Chair Jerome Powell makes remarks at the Jackson Hole monetary policy symposium. This annual event is the biggest influencer on economic outlooks. The futures market is giving a robust 93% that the Fed will lower rates by 25 points in September. It has firmly today taken a 50 basis point cut completely off the table.
In light of these developments, market participants are grappling with the implications of rising inflation and its effects on consumer prices and interest rates. The impact of market volatility is magnified many times. This is primarily because 77.37% of retail investors’ accounts lose money while trading Contracts for Difference (CFDs) and Spread Betting with these providers.