Uncomfortable Risks are Persistent

Producer Price Index (PPI) figures for February jumped by .7%, higher than an expected .3% increase. The index for PPI with less food, energy, and trade services rose .5%, the tenth consecutive advance and higher than expected +.3%. The year-over-year figure increased 3.4% vs. expectations of +2.9%.

“More than half of the February rise in prices for final demand can be attributed to a 0.5% advance in the demand for services. Prices for final demand goods increased 1.1%. Over 20 percent of the February rise in the index for demand goods is attributable to a 48.9% price increase for fresh and dry vegetables. The indexes for diesel fuel, chicken eggs, gasoline, jet fuel, and tobacco products also increased. Conversely, prices for jewelry and jewelry products fell 4.0 percent. The indexes for home heating oil and for soft drinks also declined.” ⁽¹⁾

What does all this mean?

As producers and consumers pay higher prices for goods and services, not only is this a painful reality that the Fed will not cut the Fed Funds Rate anytime soon, but it also increases the likelihood that inflation is out of control or not fleeting. Add this point to the downside risks of shaky employment opportunities amid ongoing job losses, and we have a state of limbo.

These changing risks and pressures continue to postpone or further slow the pace of Fed rate cuts.