Last Friday, the US Bureau of Labor Statistics announced that the Producer Price Index (PPI) for final demand rose just 2.7% y-o-y in March. This expansion was below the market forecast, which expected a growth of 3.3%. The surprise softening in producer inflation has investors experiencing a new round of whipsawing fears. In fact, one of the effects of those policies has been to weaken the US Dollar. The annual core PPI, which excludes food and energy prices, rose 3.3%, a decline from 3.5% in February.
According to the September data, there was a monthly decrease in the PPI and core PPI, which excludes food and energy. More specifically, the PPI fell by 0.4% and the core PPI fell by 0.1%. This is a positive trend as it points to inflationary pressures beginning to abate and has resulted in a positive and significant reaction from the financial markets.
Following these extremely weak prints, the US Dollar Index was subjected to severe bearish pressure. This pattern remained persistent throughout the American trading session. It was last seen changing hands at 99.65, down 1.2% on the day. This leaves it firmly in the red, far below the critical threshold of 100.00. This drop further highlights the dollar’s persistent woes as more positive economic signals suggest that growth in inflation has peaked.
The EUR/USD currency pair retreated from its multi-year peak over 1.1400. It withstood the challenge and ended the week back above 1.1360. This could indicate that traders are selling off in reaction to the softer PPI data while weighing overall market dynamics.
The PPI data reflects the price movement of goods and services as they are sold to the producers. It continues to be one of the most influential indicators of inflationary pressures in the overall economy. That sharp 5% reading in March came on the heels of a surge of 3.2% that was registered in February, continuing to underscore the migration of inflationary pressures.
That’s a weaker than expected number. Market analysts were looking for a stronger showing for producer prices. This sparked important conversation about what these results would mean for future Federal Reserve monetary policy decisions. This surprise drop should force a recalibration of inflation predictions and plans for interest rates in the future.