Market Commentary: ANOTHER STRONGER INFLATION READING

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The US Bureau of Labor Statistics released its index of Producer Prices (PPI) this morning and it surprised to the upside. The PPI for final demand increased 0.3% (3.6% annualized) in January on a seasonally adjusted basis and December’s reading was revised upward to a decline of 0.1% (up from an initial -0.2% reading). Economists had predicted a rise of only 0.1%.

Taking out more volatile Food and Energy data, (Core PPI), the index rose 0.6% in January after gaining 0.2% in December. ON an annualized basis Core PPI rose at a 2.6% annualize rate, the same level as December.

The upward surprise looks to have come from the Services component of the PPI. This would seem to confirm the rise in the price component of the ISM – Services data release the week of February 5, 2024. Specifically, the rise in Services final demand was largely impacted by the “Other” component which rose 0.8%. As we look at the detail for the increase in prices within the services component, the biggest contributor seems to be a 1.6% increase in the index for nonresidential real estate rents. Also, contributing to the climb were the indexes for chemicals and allied products wholesaling; portfolio management; legal services; residential property management fees; and metals, minerals and ores wholesaling. While it will certainly take more than one month of increasing prices to call an end to the disinflationary trend in place for the last year or so, the markets had been expecting cuts in the Fed Funds rate to begin in the first half of the year. To the extent that the inflation data continues to come in hotter than expected, rate cut decisions may continue to get pushed back.

Malcolm E. Polley, CFA ®
Chief Market Strategist

Source: “Producer Price Index Release Summary”, U.S. Bureau of Labor Statistics, February 16, 2024; “Producer prices rise more than expected in January”, Reuters, February 16, 2024

Investment advice offered through Stratos Investment Management, a registered investment advisor. The information contained in this market commentary reflects the opinions of Stratos Investment Management. These opinions do not reflect the views of others and are subject to change without notice. Content in this material is intended for general information purposes only and should not be construed as specific investment advice or recommendations for any individual. Please contact your advisor with any questions or for specific recommendations regarding your own circumstances. Investing involves risks including possible loss of principal.

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Malcolm Polley, CFA® - Chief Market Strategist

Malcom joined Stratos Investment Management in January of 2024, bringing over 30 years of industry experience. He acts as Chief Market Strategist and curates a range of market commentaries as well as facilitates in investment decision processes. Prior to joining Stratos, Malcolm led the effort to form Stewart Capital Advisors, LLC, an SEC registered investment advisory subsidiary of S&T Bank. He acted as President and Chief Investment Officer for 18 years. Malcolm began his career in 1987 on Black Monday; and he has held leadership positions with many financial services organizations including S&T Wealth Management, Marquette Trust Company, Marquette Advisory Services, and West Bank. He received a BBA in finance from Iowa State University. He holds the Chartered Financial Analyst® designation and is a member and past president of the CFA Society of Pittsburgh. Malcolm has served as adjunct faculty at the Eberly College of Business and Technology at the Indiana University of Pennsylvania. Malcolm often presents to client, community, and industry groups; and he has been a frequent guest on various financial and investment programs including Squawk Box, Squawk on the Street, Power Lunch, Closing Bell, Fox Business, Bloomberg TV and Bloomberg Radio. One of those appearances is quoted by Andrew Ross Sorkin in his bestselling book, Too Big to Fail.