PPI inflation results call into question the June interest rate cut. in Usa?

U.S. producer prices accelerated at a faster pace than expected in February, another sign that inflation remains a troublesome issue for the Federal Reserve and the broader U.S. economy.

The dollar appreciated a EUR / USD exchange rate fell below 1,09. The reaction on the FX market was almost twice as high as what we saw after Tuesday's CPI report. The debt market responded with an increase in yields. The U.S. government's 2-year benchmark rose to 4,69. Wall Street indexes recorded a moderately declining session yesterday.

Energy prices are key

The producer price index increased by 0,6 percent. within a month, the U.S. Department of Labor's Bureau of Labor Statistics reported Thursday. This was more than the forecast 0,3 percent. and followed an increase of 0,3%. in January. Excluding food and energy, basic PPI index accelerated by 0,3 percent, compared to the estimated growth of 0,2 percent. Year-on-year, the main index increased by 1,6%, which was the largest move since September 2023.

The BLS reported that about two-thirds of the headline PPI increase came from 1,2%. increase in commodity prices, which constitutes the largest increase since August 2023. As in the case of CPI, the acceleration was due to energy prices, which increased by 4,4%. Gasoline prices increased by 6,8%. at the wholesale level. PPI is considered a leading indicator of inflation because it indicates costs early in the supply chain.

In addition to price data, we also learned the retail sales results. It rebounded, increasing by 0,6%. per month, according to Commerce Department data, which is seasonally adjusted. The increase helped reverse a downwardly revised 1,1% decline. in January, but was still below estimates assuming an increase of 0,8%.

The chances for discounts are decreasing

Yesterday's set of data was the last significant one before the two-day FOMC meeting next week (Tuesday-Wednesday). The releases contributed to a decline on Wall Street, with major U.S. stocks falling slightly. Treasury bond yields rose on the report across the entire length of the yield curve. It was visible significant strengthening of the US dollar. The main currency pair has decreased and is currently below 1,09.

The Fed will almost certainly keep its benchmark interest rate unchanged, while markets will look for clues about the future of monetary policy. Futures prices indicate that the Federal Open Market Committee will begin lowering the cost of money in June, and three quarter-percentage-point cuts are expected this year. However, the market reduced the chances of a reduction in mid-year to approximately 55%. Please remember that the latest dot chart and current projections of inflation, GDP and unemployment rate will also be subject to assessment.

Source: OANDA TMS Brokers