New Preview – Inflation Report
The last inflation report provided us with a preview in the form of an algorithm tracking consumer spending habits. Sure, it might’ve gotten our hopes up just a little, but it was mostly accurate in predicting where the CPI would move. This time, we can turn to a different indicator called the producer price index, which is like the consumer price index on which we are so focused. The producer price index shows us how much suppliers are charging their customers, which provides us insight into the inner layer of the economy. Although it won’t give us exact numbers, you could argue this is the better indicator due to the correlation with the CPI and the direct impact on the economy.
For the month of September, US suppliers have raised prices by 0.4 percent, and the PPI rose by 8.5 percent from a year before. Just like how we focus on core CPI, core PPI rose by 0.4 percent, which was more than expected. Like everything in the economy, the rise is attributed to increased energy and food prices. Energy plays a key role for the supplier when it comes to producing materials, and as prices increase from the inside it will be reflected on the outside. The PPI often reflects what will happen with consumer-level inflation because companies are still looking to make a profit. If they are paying more to acquire the materials, then they are going to increase the cost of the goods or services themselves in order to stay profitable. Although this might pose a problem for the September CPI report, the PPI indicators show that inflation is going to slow down in the coming months.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.