Divergence Appearing in Core and Headline Inflation, Showing Price Hikes Not Coming from Oil

Posted Wednesday, September 14, 2022 by
Skerdian Meta • 1 min read

The Japan PPI Inflation Report

Inflation has been running rampant this year in Europe and the US, with food prices surging higher, Oil, gas and energy prices also surging, as well as other goods. Inflation is now close to record levels and despite expectations of consumer inflation (CPI) cooling off, it remains quite high, at around 10% officially, while in reality, it should be even higher.

The producer inflation (PPI) is showing signs of cooling off though, after the last two declines. But, that’s not helping lower consumer inflation. After yesterday’s post CPI carnage, the market was looking for signs on pipeline inflation. Yesterday’s CPI report threatens to upend the idea of a crest in inflation and replace it with a stick battle that might push the FED to hike rates to +5%, despite not having any impact on inflation whatsoever. That’s raised the stakes in the inflation debate and elevated every data point.

US August Producer Price Index Report

August PPI YoY +8.7% vs +8.8% expected
July PPI was +9.8%
PPI MoM -0.1% vs -0.1% expected
July PPI MoM reading was -0.5%
Core PPI YoY ex-food and energy +7.3% vs +7.1% expected
Core PPI MoM ex-food and energy +0.4% vs +0.3% expected

The core ex-food and energy numbers are disappointing. Inflation is flowing through the core right now and that’s what has the market worried. These are close enough to expectations not to cause big ripples but bad enough to keep dip buyers at bay. The dollar is unmoved by these numbers. Although this shows that big companies are responsible for the jump in prices and they are pocketing all the profits, as the revenue reports for the last several months have been showing.