Mild Producer Price Data Follows Consumer Price Shock, Yet Economists Raise Doubts On Rate Cuts: 'Fed Pivot Is Quickly Disappearing'

American producers experienced a surge in price pressures last month, yet the increase was slightly below economist expectations, calming market concerns that spiked after a higher-than-anticipated consumer price inflation report on Wednesday.

The Producer Price Index (PPI) climbed from 1.6% in February 2024 to 2.1% in March 2024, marking its highest annual rate since April 2023, albeit falling slightly short of the projected 2.2%. Meanwhile, the core PPI delivered a mixed picture, with a 0.2% monthly increase in line with forecasts, but a 2.4% annual rise, surpassing the expected 2.3%.

Market reactions were mixed, with the SPDR S&P 500 ETF Trust SPY flat for the day, and the tech-heavy Invesco QQQ Trust QQQ rebounding 0.4%, after a 0.9% loss on Wednesday.

What are the nuances of this PPI report, and what implications might it hold for future interest rates?

Benzinga has compiled insightful reactions from economists, analysts, and market experts.

PPI Doesn’t Shift The Fed Rate Outlook

The Kobeissi Letter highlighted on social media platform X, formerly Twitter, that both the PPI and Consumer Price Index (CPI) inflation have risen steadily for two consecutive months, marking the first occurrence of such a trend since September 2023. This data may underscore a significant shift for the rate cut outlook, suggesting that “the Fed pivot is quickly disappearing.”

According to Larry Tentarelli, president and founder of Blue Chip Daily Trend Report, the PPI report was constructive, but investors should brace for a reduced likelihood of Federal Reserve rate cuts this year, potentially one or two at most.

Tentarelli anticipates the earliest potential rate adjustment not occurring until the July meeting. “Incoming CPI inflation data has exceeded forecast for three months in a row, which is a trend,” he stated.

Similarly, Bill Adams, chief economist for Comerica Bank, noted a subdued PPI report doesn’t override the signal conveyed by the three robust CPI reports in the first quarter. He suggested that the Federal Reserve will likely delay interest rate reductions until the third quarter.

Gold-lover economist Peter Schiff cautioned against undue enthusiasm regarding the modest 0.2% increase in March’s PPI, which was slightly lower than expected.

Despite this, the year-over-year (YoY) rise has still climbed from 1.6% to 2.1%, while YoY core inflation has surged to 2.8%.

“The index is headed in the wrong direction and cost pressures are clearly building.”

Schiff predicts that future monthly PPI gains will likely be substantially higher, emphasizing the growing urgency of the situation.

“Thursday’s weaker-than-expected PPI suggests that inflation data is inherently inconsistent,” said George Ball, chairman of Sanders Morris.

He acknowledged that the Federal Reserve will proceed cautiously with rate cuts, given the current data landscape. He emphasized the significance of the Personal Consumption Expenditures (PCE) report at the end of April as the Fed’s preferred inflation gauge. “Until then, only spasms of rate guessing will mark the markets.”

Andreas Steno Larsen, CEO of Steno Research, an independent macro research platform, cast doubt on the accuracy of the Bureau of Labor Statistics’ (BLS) estimates.

Specifically, Larsen questioned a statement from the BLS indicating that gasoline prices decreased by 3.6%, leading to a decline in the index for final demand goods in March. Larsen pointed out that this assertion contradicted the reality of rising gasoline prices, which averaged above $3.50 per gallon last month.

The discrepancy, according to other sources, lies in the treatment of seasonally adjusted versus unadjusted data, with the latter seeing materially higher gasoline prices.

Read now: Fed Minutes Reveal Growing Unease Over Inflation Path: Not ‘Merely Statistical Aberrations’

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