What CPI (And PPI)?

The way it has been described since CPI estimates for last month represented a seismic shift in the inflation debate. There is no more argument, apparently, and if that wasn’t apparent enough then today it was followed up with even more highly-touted evidence. Producer prices, the PPI, came up even more over-the-moon than those for consumers.

The commodities portion, no surprise, these were a huge contributor right off the bat. Year-over-year, April 2021’s index number was 17.25% higher than April 2020’s. Base effects, however, were a huge part of it, much more than the more than the limited contributions they made for the April CPI. Compared to April 2019, the commodity PPI was up just 7.6%, or a rather tame 3.7% annual rate.

The same for the headline; overall, big jump (9.42%) compared to last year’s trough, the highest since the summer of 2008. Up only 3.7% versus two years ago, for an annual rate of 1.8%. Perhaps most importantly, given this is a seasonally-adjusted series, the monthly change in April from March was a tiny one, just 0.28% which leans more in favor of “transitory.”

The core PPI rate performed slightly hotter than its full complement counterpart: in April 2021 up 4.16% on the year, 4.5% against April 2019, and a monthly pickup of 0.66% over March 2021. Still more like “transitory” than not.

Since those huge annual comparisons, at least, in the various PPI series were thrown around in the aftermath of the mammoth CPI gains, you’d expect the bond market to be in the midst of an epic meltdown. Or certainly a noticeable tailspin. No less than a sizable rout.

Bid back?

While yields rose on Wednesday in the aftermath of the consumer price estimates, they declined today with some of them in the middle of the curve taking back more than half of what had been a relatively normal selloff. The 5-year UST, for instance, jumped from 80 bps to 87 bps, but was back to 84 bps today. The 10s, 164 bps to 169 bps and then steadily lessened today down 166 bps as if the PPI had tipped the balance back toward calm.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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