We get the first half of arguably the most important inflation metrics — or at least those which are most often cited when people discuss inflation in the economy — the Producer Price Index (PPI) for November. In this data, across the board we’re hotter than expected, which has swung pre-market futures from +150 points on the Dow, +25 on the S&P 500 and +80 points on the Nasdaq to -150 points, -25 and -100 points, respectively.

That’s a pretty decisive swing to the downside. Headline PPI last month came in at +0.3% month over month, even with an upwardly revised October headline, but 10 basis points (bps) hotter than expected. Stripping out volatile food and energy costs, the “core” read came in even hotter: +0.4%, versus the 0.0% reported in October. Ex-food, energy and trade reached +0.3%, 20 bps higher than expected.

Where the quotable inflation metrics tend to come in are on the year-over-year side, and here we see +7.4% on headline PPI, down from +8.0% the previous month but 20 bps above projections. Core PPI year over year hit +6.2% in November, higher than the +5.9% expected but a half-point off October’s +6.7%. Ex-food, energy and trade reached +4.9%, 20 bps above consensus but down a half-point from the prior read.

For some context — which should prove useful if market participants are fretting inflation remaining too hot — the high water marks on PPI data all came in March of this year: +11.7% year over year on headline, +7% on core and +7.1% minus food, energy and trade. In other words, even these disappointing prints are -430 bps, -80 bps and -220 bps, respectively. This not only illustrates how much food, fuel and trade costs have affected these numbers, but it also strongly suggests the worst of inflation is indeed behind us.

Tuesday of next week brings us the sister report to PPI, the Consumer Price Index (CPI), which counts pricing downstream from what producers were paying. A month ago, we saw +7.8% year over year CPI and +6.3% core — also off peaks reached earlier in the year. Hopes are that CPI data can still reduce from those levels, but today’s hotter PPI complicates matters.

In any case, when the Fed reconvenes, also on Tuesday, and comes out with its latest interest rate hike the next day, we do not expect any change from the projected 50 bps hike already bandied about publicly. Significantly hotter CPI may finally have a say in what the Fed decides to do, and if this occurs, I think some selling from current equity valuations may be in the cards. But we’ll worry about that then.

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