Wholesale prices were lighter than expected in July, a hopeful sign for consumer inflation and Federal Reserve rate cuts. This comes a day ahead of the CPI inflation report. S&P 500 futures extended gains following PPI report.
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How the Fed’s interest rate cuts and hikes are affected by the PCE report
The producer price index rose 0.1% versus June. Core PPI is flat, excluding food and energy. Economists expect a 0.2% increase for both.
Overall PPI inflation was 2.2% a year ago. This was below forecasts for 2.6% and an upwardly revised 2.7% in June.
Core PPI inflation was 2.4%. Economists expect no change from June’s 3%.
The PPI report is important because many of its figures feed directly into the Federal Reserve’s preferred measure of inflation, the core PCE price index.
CPI inflation
On Wednesday, the Labor Department will release the Consumer Price Index. According to Econoday, economists expect a 0.2% monthly gain for both overall CPI and core CPI in July. This would keep the 12-month CPI inflation rate at 3%, while core inflation eases to 3.2%, the lowest since April 2021.
The core PCE price index derives 70% of its inputs from the CPI.
Fed Rate Cut Odds
Markets were largely divided on the size of a September Fed rate cut, with odds of 51.5% for a 50-basis-point cut and 48.5% for a 25-basis-point cut, according to the PPI report.
After the PPI report, the odds for a half-point Fed rate cut were around 54%.
The S&P 500 rose
The S&P 500 rose 0.75% after Tuesday’s open, close to its 21-day moving average. The benchmark index is higher since the Aug. 5 global sell-off, but the S&P 500 is below its 50-day line.
The 10-year Treasury yield fell six basis points to 3.86%.
Follow Ed Carson on Threads @edcarson1971 and on X/Twitter @IBD_ECarson For stock market updates and more.
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