So Much for Inflation Running Wild This Summer

Handsome Chocolate Labrador - Let Sleeping Dogs Lie

This week brought a trio of reports on inflation. None of them seemed to flash any warning signs about prices spiraling out of control.

  • On Wednesday, the Labor Department said producer prices (PPI) rose 0.3 percent in June. That was above the 0.2 percent forecast.
  • On Thursday, consumer prices (CPI) were cooler than expected, rising just 0.1 percent. Not surprisingly, higher energy prices played a big role in both PPI and CPI.
  • Today, import prices fell 0.4 percent, while economists were modeling a 0.1 percent gain.

Remember, this comes just a week after the government’s non-farm payrolls report showed non-existent wage pressures and a trend of workers re-entering the workforce. Those conditions are also consistent with benign inflation.

It might even be argued that the data is positive for stocks because both CPI and PPI showed increases in goods and services provided by corporations: Transportation services, autos and medical care. In other words, businesses have pricing power. That, in turn, should support both profits and investment over the longer term.

There could be more good news beyond these inflation reports because most commodities aside from oil (metals and grains) have been sliding. That could also help prevent runaway price increases. Maybe that’s why bond yields have been sliding for the last 2-3 months.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But this week’s data only seemed to confirm that Goldilocks is still running the show.

ThomsonReuters CRM Commodity Index ($TRCCRBTR) showing recent price slide.
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.