Originally Posted: 11/15/2022 8:30 AM ET
Updated: 11/15/2022 8:40 AM ET
We’re reaching “peak season” right now as the final batch of Q3 earnings reports come out and the last few major economic reports are published. While we typically write about penny stocks, market-moving data can impact all stocks, including CPI and PPI inflation data.
Last month’s CPI inflation report gave a reason for the market to become a bit more optimistic about Fed policy. With CPI coming in much lower than expected, hopes are high that October’s PPI inflation data will follow suit.
This move came after bearish sentiment lowered the stock market following the November Fed press conference. Fed Chair Jerome Powell seemed to have a completely different tone than the Fed statement read.
Confusion and concern prompted a micro stock market crash that was soon levied by Consumer Price results. Looking ahead, the PPI report today will show results from October and will be one of the final pieces of economic data coming out before the end of the year. So tensions are running high that the CPI report and PPI report align. The PPI November 2022 readout will come out next month.
Let’s go over some of the basics for those who may not be familiar with and are asking questions like:
What is PPI in economics?
PPI Inflation Data vs. CPI Inflation Data & Why PPI data matters to the stock market today
How can PPI inflation data be used in your investing and trading strategy?; and lastly
What are the results of the September PPI inflation report?
What Is PPI Inflation Data & What Is The PPI Report?
PPI is “a measure of the average change over time in the selling prices received by domestic producers for their output is what has defined the producer pricing index,” according to the U.S. Bureau of Labor Statistics. “The prices included in the PPI are from the first commercial transaction for many products and some services.”
PPI vs. CPI: Why Does PPI Matter?
The Produce Price Index inflation data matters because it is a data point for investors to understand future inflationary tendencies. It can also be used as a means for enacting monetary policy.
CPI Data V.S. PPI Data
Compared to CPI data, Producer Prices in the PPI report show a picture from the lens of companies producing final products, what their input costs are, and give a glimpse into whether or not prices could trigger a jump or drop in retail costs that consumers incur.
September PPI Inflation Report
What happened in the September PPI inflation report? The Producer Price Index for final demand increased 0.4% in September. Year-over-year PPI inflation data came in at 8.5%. Meanwhile, the index for final demand less foods, energy, and trade services moved up 5.6%. Considering that the September PPI report data came in higher than expected, some hope it turns around in October and be more in line with the recently published October CPI report.
PPI Expectations October 2022
Let’s look at PPI and Core PPI expectations for October. The year-over-year PPI estimates for October are set at 8.3%. This would be less than the 8.5% PPI readout in September and show progress from August’s 8.7%. Core PPI is expected to come in at 7.2% for October and would be in line with September’s 7.2%.
The Producer Price Index Report For October 2022 & PPI Numbers
The Producer Price Index for final demand increased 0.2 % in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 % in September and were unchanged in August. (See table A.) On an unadjusted basis, the index for final demand advanced 8.0% for the 12 months ended in October.
In October, the rise in the index for final demand can be attributed to a 0.6-% advance in prices for final demand goods. In contrast, the index for final demand services decreased 0.1 %.
Prices for final demand less foods, energy, and trade services advanced 0.2 % in October following a 0.3-% rise in September. For the 12 months ended in October, the index for final demand less foods, energy, and trade services increased 5.4 %.
Final demand goods: The index for final demand goods moved up 0.6 % in October, the largest advance since a 2.2-% rise in June. Most of the October increase can be traced to a 2.7- % jump in prices for final demand energy. The index for final demand foods advanced 0.5 %. Conversely, prices for final demand goods less foods and energy decreased 0.1 %.
Something that the Bureau of Labor Statistics discussed was the major factors in the October decrease:
“A major factor in the October decrease in prices for final demand services was the index for fuels and lubricants retailing, which fell 7.7 %. The indexes for portfolio management, long-distance motor carrying, automobile retailing (partial), and professional and commercial equipment wholesaling also moved lower. In contrast, prices for hospital inpatient care increased 0.8 %. The indexes for services related to securities brokerage and dealing (partial), apparel wholesaling, and airline passenger services also rose.”
Breaking Down The PPI Report: Key Takeaways
- PPI Inflation Data for October came in at 8.0% BELOW expectations of 8.3%
- October Core PPI came in at 6.7% BELOW Expectations of 7.2%
- Month on Month CPI data came in at 0.2% compared to 0.4% expected
- Processed goods for intermediate demand: Prices for processed goods for intermediate demand moved down 0.2% in October after no change in September.
- The index for services for intermediate demand increased 0.3% in October, the fourth consecutive rise. Leading the October advance, prices for services less trade, transportation, and warehousing for intermediate demand climbed 0.5%.
- Over half of the October rise in the index for services for intermediate demand can be attributed to a 6.0% increase in prices for business loans.
- margins for machinery and equipment parts and supplies wholesaling fell 0.9%. Prices for gross rents for retail properties and for long-distance motor carrying also decreased.
- Other data coming out included NY Empire Manufacturing Index data for November. This came in at 4.5 vs 5 expected
Now the market looks to the Fed and its next policy move. The FOMC holds its December meeting on the 13th and 14th. Meanwhile, the next CPI November 2022 and PPI November 2022 numbers come out on December 13th and December 9th, respectively. Both will be out before the FOMC concludes its December meeting and before the December Fed press conference on December 14, 2022.
The Stock Market Today
Immediately following the latest October PPI numbers, broad markets surged higher. The S&P 500 ETF (NYSE: SPY) jumped above $402. Meanwhile, the tech-heavy Nasdaq ETF (NASDAQ: QQQ) popped back above $293. This helped take companies like Taiwan Semi (NYSE: TSM) even higher after Berkshire Hathaway revealed a $4.12 billion position in the semi-conductor company.
Other stocks in focus were Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT), which could have been impacted by October’s producer pricing. Both popped during premarket trading and were also helped by stronger-than-expected earnings results from Walmart. This trend also overflowed into global stocks. eCommerce company Alibaba (NYSE: BABA) spiked back above its 50-day moving average and reached premarket highs of over $79 on Tuesday.