Two steps forward, one step back: PPI, UMich
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TWO STEPS FORWARD, ONE STEP BACK: PPI, UMICH
Investors wrapped up the week in economic data with a one-two punch of negative surprises.
The Labor Department followed its cool CPI report with hotter-than-expected PPI data, another reminder that inflation's path back down to the Fed's 2% goal is a meandering one, with detours and roadblocks.
The Producer Prices index (PPI) USPPFD=ECI, which tracks the prices U.S. firms get for their goods and services at the figurative factory door, increased by 0.2% in June, double the rate analysts expected.
Year-over-year, the headline number gained 20 basis points to 2.6%, remaining within 1 percentage point of Powell & Co's goal.
Core PPI, which omits volatile food, energy and trade services, was unchanged from May, and rose 3.1% from a year ago, marking a 20 basis point cooldown from the prior month.
This week, Fed Chair Jerome Powell in his congressional testimony, repeated his well-worn mantra that more data is needed in order to be confident in the sustainability of inflation's cool-down.
Well, he got data this week. If it was a bit contradictory, he should have been more specific.
"The big picture is that inflation pressures have moderated over the last two years but are still a bit stronger than the Fed would like them to be," writes Bill Adams, chief economist at Comerica Bank. "With the economy operating in low gear, the Fed thinks the right time to start cutting interest rates is close."
Three of the four major U.S. inflation indicators have now put their print on June. That leaves PCE, the Fed's favorite yardstick:
Shifting gears, the University of Michigan's preliminary take on current-month Consumer Sentiment USUMSP=ECI showed some clouds that weren't in the forecast.
The headline number surprised to the downside, slipping 2.2 points to an even 66, defying the minimal uptick called for by consensus.
Survey respondents' view of current conditions and near-term expectations deteriorated by 2.7% and 3.4%, respectively.
"Consumer attitudes are deteriorating likely on inflation fatigue and a rising unemployment rate even as job growth remains strong," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "The sentiment data are sending a negative signal about household spending although domestic demand remains strong and the trend in consumption is positive for now."
Despite that inflation fatigue, price growth expectations are cooling off.
Both one-year and five-year inflation expectations ticked down 10 basis points to 2.9%.
"Encouragingly, inflation expectations both one and five years ahead remain well anchored," says Michael Pearce, deputy chief U.S. economist at Oxford Economics. "Together with falling actual inflation, that paves the way for interest rate cuts from the Federal Reserve beginning in September."
(Stephen Culp)
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Inflation gauges https://reut.rs/3zBjWUh
UMich present v future https://reut.rs/3LorzQN
UMich inflation expectations https://reut.rs/4bAlds8
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