Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Click for Bio
Follow Brian on Twitter Follow Brian on LinkedIn View Videos on YouTube
   Bob Stein
Deputy Chief Economist
Click for Bio
Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 
  The Producer Price Index (PPI) increased 0.1% in February
Posted Under: Data Watch • Inflation • PPI

 

Implications:  Following three consecutive months of declines, the producer price index ticked back into positive territory in February. The rebound in February can be traced to goods, which rose 0.4% after also falling three months in a row.  About 80% of the gain in goods prices came solely from rising energy prices, which were up 1.8% in February.  The recent weakness in the headline numbers have primarily been about falling oil prices, but now with crude rebounding it's not surprising to see a return to price growth.  The Federal Reserve is well aware of the short-term price volatility from the energy sector, which is why we think talk of "muted" headline inflation won't be enough to dissuade them from further rate hikes later in 2019 as long as the yield on the 10-year Treasury Note rises, as well.  Stripping out the volatile food and energy categories shows "core" inflation stands comfortably above the Fed's inflation target, up 2.5% in the past year (if you are feeling a bit of deja vu, yesterday's report on consumer prices showed a similar pattern).  That said, price pressures in the service sector, which represents about two-thirds of the overall index, may be abating, rising at only a 1.0% annual rate over the past three months versus 2.5% over the past year.   This slowdown was the result of February service sector prices remaining unchanged, as unexpected declines in prices for trade, transportation & warehousing services (think wholesaler margins) were offset elsewhere.  Notably, private capital equipment prices are up 3.5% in the past year, the fastest year-over-year growth of any major category, possibly signaling rising demand for business investment which will provide a boost to economic activity in the year ahead.  Looking further down the price pipeline suggests we will continue to see some volatility in the month-to-month readings for the producer price index.  But with both the ISM Manufacturing and Non-Manufacturing indices comfortably in expansion territory, and an increasingly-tight labor market for qualified labor to both produce and transport goods, we expect wages - and general prices – will push higher at a faster pace in the year ahead.  At the end of the day, the trend in core prices – where the Fed will focus their attention – suggests inflation of around 2.5% in 2019.

Click here for PDF version

Posted on Wednesday, March 13, 2019 @ 11:13 AM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2019 All rights reserved.