Futures Soar After PPI Misses Across The Board, Drops To Lowest In Over A Year As Service PPI Now Deflating

Just days after the CPI missed across the board sparking a record surge in stocks, moments ago the PPI followed suit when the BLS reported that in October wholesale inflation not only eased across the board but missed every single forecast, with the highlight being the unchanged print in core PPI, a sharp drop from last month’s 0.2% increase and far below the 0.3% forecast. Here is the breadown:

PPI 0.2% M/M, Exp. 0.4%, Last 0.2% (revised from 0.4%)
PPI 8.0% M/M, Exp. 8.3%, Last 8.4% (revised from 8.5%)
 
PPI Core 0.0% M/M, Exp. 0.3%, Last 0.2% (revised from 0.3%)
PPI Core 6.7% Y/Y, Exp. 7.2%, Last 7.1% (revised from 7.2%)

The YoY increase in headline PPI of 8.0% was the lowest since July 2021, the lowest in over a year.

The energy contribution to PPI continues to shrink, and while services was clearly a major contributor on q YoY basis…

… the services PPI actually posted its first decline since Nov 2020, even as final demand goods rose sequentially.

The index for final demand goods moved up 0.6% in October, the largest advance since a 2.2% rise in June. Most of the October increase can be traced to a 2.7-percent jump in prices for final demand energy. The index for final demand foods advanced 0.5 percent. Conversely, prices for final demand goods less foods and energy decreased 0.1 percent.

According to the report, more than 60% of the increase in prices for final demand goods is attributable to the index for gasoline, which rose 5.7%. Prices for diesel fuel, fresh and dry vegetables, residential electric power, chicken eggs, and oil field and gas field machinery also advanced. In contrast, the index for passenger cars declined 1.5 percent, while prices for gas fuels and for processed young chickens also fell.

But the big surprise in today’s report was the drop in final demand services fell 0.1% in October, the first decline since moving down 0.2 percent in November 2020. Leading the October decrease, margins for final demand trade services fell 0.5 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services moved down 0.2 percent. Conversely, the index for final demand services less trade, transportation, and warehousing increased 0.2 percent.

According to the report, a major factor in the October decrease in prices for final demand services was the index for fuels and lubricants retailing, which fell 7.7%. The indexes for portfolio management, long-distance motor carrying, automobile retailing (partial), and professional and commercial equipment wholesaling also moved lower. In contrast, prices for hospital inpatient care increased 0.8 percent. The indexes for services related to securities brokerage and dealing (partial), apparel wholesaling, and airline passenger services also rose. 

Finally, we note that the pipeline of PPI pain is easing further as intermediate goods inflation eased further, and is about to overtake final demand PPI to the downside, a clear indicator of much more weakness to come.

The data was so bad that, when combined with last week’s CPI, traders are increasingly wondering if after December’s 50bps rate hike (and upcoming dismal NFP report) that will be it from the Fed. Naturally, futures soared on the big PPI miss.