Positive PPI Impact on Fed Decision Boosts S&P 500; Anticipation Builds for CPI Reveal

• The Producer Price Index (PPI) data for April shows a hotter inflation rate, although concerns are eased by downward revisions to earlier data.
• Health care prices, a major input to the Federal Reserve’s primary core inflation rate, have moderated slightly.
• The S&P 500 edged higher in morning stock market action following the release of the PPI data.

Latest PPI data shows hotter inflation for April, but downward revisions to previous data ease concerns. The S&P 500 edges higher in response.

PPI Data Details

The PPI for final demand rose 0.5% on the month and 2.2% from a year ago, surprising Wall Street economists who anticipated a 0.2% monthly rise and a 2.2% gain from a year ago. The upside surprise on the monthly data but in-line annual increase implies downward revisions to prior data. Excluding food and energy, the PPI rose 0.3% on the month vs. 0.2% forecasts.

Impact on Key Fed Inflation Rate

Fed chair Jerome Powell characterized the PPI data as “quite mixed,” with revisions offsetting the high headline number. However, revisions to PPI components that feed into the core PCE price index may mean the key Fed inflation rate wasn’t quite as hot in the first three months of the year as previously thought.

Preview of CPI Data

Consumer price index data for April is expected to show a 0.3% monthly increase, lowering the 12-month headline inflation rate to 3.4%. The core CPI, excluding food and energy, is seen rising 0.3%, moderating a bit after increases of 0.4% in each of the year’s first three months.

Fed Rate-Cut Odds

After the PPI, markets were pricing in 31% odds that the Fed’s first quarter-point rate cut will come by the July 31 meeting, unchanged from before the data. Odds of a rate cut occurring by the Fed’s Sept. 18 meeting ticked up to 66% from 64%.

S&P 500 Performance

The S&P 500 rose 0.15% after the PPI data. On Monday, the S&P 500 finished a hair below the flat line. Last week, the S&P 500 rallied 1.85%, powering back above its 50-day moving average. The S&P 500 is about 0.5% below its all-time closing high on March 28.

Conclusion

The latest PPI data shows a hotter inflation for April, but downward revisions to previous data have eased concerns. The S&P 500 has responded positively to this news, edging higher in morning stock market action. The upcoming CPI data and Fed’s rate-cut odds will be key factors to watch in the coming days.