BUZZ-COMMENT-US PPI may have larger impact than usual

Reuters · 05/13 10:26
BUZZ-COMMENT-US PPI may have larger impact than usual

- In a rare occurrence, the release of U.S. PPI (Tuesday) will be before the CPI report (Wednesday). Since the beginning of 2021, this has only happened six times out of 40 occasions.

In turn, the PPI figures will likely be more important and potentially more market moving than is often the case, with traders using the PPI report to gauge the potential CPI outcome.

The headline PPI figure is forecast to edge up to 2.2% from 2.1% with the monthly rate at 0.3%. When looking at CPI, the headline rate is expected to drop to 3.4% from 3.5% although maintaining a monthly rate of 0.4%. Naturally, with both markets and Federal Reserve officials largely uncertain over the timing of policy easing, the upcoming inflation data is key.

Looking at the monthly PPI data relative to expectations since the beginning of 2021, there is predictive power in PPI for CPI as it is more or less a 50/50.

However, when the deviation from expectations in monthly PPI is 0.2 ppts or more, the hit rate for CPI moving in the same direction is at 64%. Thus, the larger the surprise in monthly, the more likely that CPI will follow in the same direction.

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(Justin McQueen is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond)