Headline PPI rose .3% m/o/m in February after a .6% rise in January, above the estimate of up .1% and this brings the y/o/y rise to 2.2% up from 1.6% last month. That’s the biggest gain since March 2012. The core rate also ran above expectations with a .3% m/o/m rise vs the forecast of up .2%. The y/o/y core rate was up by 1.5% vs 1.2% in January. There is also a core/core number that takes out food, energy and trade which also saw a .3% m/o/m rise and 1.8% y/o/y gain, a 2 ½ yr high. This was driven by a further rise in prices for services less trade, transportation and warehousing. The BLS is attributing this core/core rise mainly to “traveler accommodation services, which rose 4.3%.” Higher energy prices drove over half the rise in goods prices where electric power was a key driver.
There is also inflation brewing in the pipeline as “prices for processed goods advanced by .4%…and prices for services climbed by .5%.” Unprocessed prices fell by .2% m/o/m but only after spiking by 3.8% in January and 8.4% in December.
Bottom line, while running above expectations, the market only cares about the CPI and PCE measures of consumer prices. The 5 yr inflation breakeven is down by 1 bp to 1.99%. The 10 yr inflation breakeven is also lower by 1 bp to 2.01%. With the weakness in the S&P futures, the 10 nominal 10 yr yield is backing off slightly from the 2.62% level seen last hour and as seen in the chart I included earlier, we can see the key technical level we are at.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.