US Purchasing Power Index data rose strongly yesterday but still came in below expectations.
US PPI Hits Three-Year High, but Core PPI Steady
This was a sharp rise from the 3.4% increase in February. It marked the highest PPI rate since February 2023, but was well below the market estimate of 4.6%. On a monthly basis, PPI rose 0.5% in March, unchanged from a revised 0.5% in February and much lower than the market estimate of 1.1%.
Core PPI, which excludes food and energy, showed modest gains compared to the headline numbers. Core PPI remained steady at 3.8% year-on-year in March, after February was revised downwards from 3.9%. This was below the market estimate of 4.1%. Monthly, core CPI eased to 0.1% in March from a downwardly revised 0.3%, below the market consensus of 0.5%. Food prices, which soared 2.4% in February, fell sharply to 0.3% in March.
Soaring Gasoline Prices Send PPI, CPI Higher
The sharp increase in headline PPI was led by surging energy prices, as the Iran war has driven up oil prices, translating into higher prices at the gasoline pump for US consumers. Even with a ceasefire currently in place, crude oil prices are hovering close to $100 per barrel.
Consumer inflation has jumped due to the spike in oil prices, as higher gasoline prices pushed consumer inflation up 3.3% in March, its highest level since May 2024. As long as the Iran conflict continues, oil prices will remain high and there’s little likelihood of inflation falling. This would complicate efforts by the Federal Reserve to lower interest rates. The Fed held rates at the March meeting and meets next on April 29.
Somewhat surprisingly, the Iran war has not resulted in investors ditching equities or risk assets in favor of the safe-haven US Dollar – the major currencies have managed to hold their own against the greenback despite the conflict. If the war in Iran escalates, we could see risk appetite slip and the Dollar push higher, but as things currently stand, the US currency is not particularly attractive to investors.
US Dollar Steady, Stock Markets Higher After Inflation Report
Tuesday’s PPI report had almost no effect on the direction of the US dollar. Most of the major currencies are almost unchanged on Wednesday, while the AUD/USD currency pair has posted slight gains, trading at 0.7144, up 0.24%.
US stock markets showed strong gains on Tuesday. The Nasdaq 100 Index climbed 458.28 points (1.81%) and closed at 25,842.00.
The S&P 500 Index gained 81.14 points (1.18%) and closed 6963.78.
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