Inflation risks are rising, as evidenced by a string of recent government reports showing that prices have been edging higher, both at the wholesale and the retail levels.
A report published on Tuesday showed that the March Consumer Price Index (CPI) - a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services - rose 0.6% on a seasonally adjusted basis. This increase puts it slightly above market expectations, which did not predict the CPI to increase above 2.5%, and marks the highest reading since August 2018.
For the year, CPI is up 2.6% (not seasonally adjusted). The core CPI, a measure that excludes food and increased 0.3% in March, is up 1.6% over the year.
Meanwhile, a report published last week showed that the March Producer Price Index (PPI) - a measure of the average change over time in the selling prices received by domestic producers for their products - rose 1.0% over the previous month. March prices for final demand goods advanced 1.7%, with the index for final demand services edging up 0.7%. The final demand index jumped 4.2% for the 12 months ended in March.
The March PPI gain follows a 2.8% increase in February and beats the market consensus estimate of 3.8%. It is the most significant advance in producer prices since September of 2011.
"The combination of loose monetary and fiscal policies and economic reopening is raising inflation concerns. This is shown in rising oil prices as well as market measures of inflation expectations and the risk of high inflation outcomes," said a research briefing out of Oxford Economics this morning.
Rising inflation is usually a headwind for Wall Street as it pushes long-term interest rates higher, eventually forcing the Federal Reserve to raise short-term interest rates. Still, the Federal Reserve doesn't seem to be concerned about inflation risks. The Federal Reserve Chairman, Jerome Powell, has repeatedly stated in public appearances that the recent surge in inflation is only a transitory problem due to supply-side bottlenecks as the economy strives to recover from the pandemic.
Meanwhile, Wall Street continues to cast a wary eye on inflation risks as it gets ready for the earnings reporting season, which begins tomorrow with a wave of earnings reports from banks and financial companies.
Disclosure: No positions
Read more here:
- Costco Finds Its Magic Again
- Strong Job Growth Sends Wall Street to New Highs, but What's Next?
- Strong Inflation Numbers Give Bank Shares a Boost
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
