Reaction Roundup: SA analysts, experts weigh in on unexpected fall in August PPI

[PPI - acronym from wooden blocks with letters]
Roman Didkivskyi

Wall Street's focus on Wednesday was on the August producer inflation report, which unexpectedly showed a decrease in both core and headline measures.

The overall producer price index (PPI) for August slipped [https://seekingalpha.com/news/4493670-august-producer-inflation-unexpectedly-declines-on-both-headline-and-core] 0.1% M/M, surprising economists who had expected an increase of 0.3% and marking a big turnaround from July's revised +0.7% figure. The core PPI also inched lower by 0.1% M/M, compared to a consensus of +0.3% and July's +0.7% reading.

The PPI print reinforced expectations that inflation was no longer much of a headache for the Fed and that recent weakness in the labor market was the more pressing concern. Focus will now be on Thursday's consumer price index (CPI) report to see whether the soft inflation trend continues.

The benchmark S&P 500 index (SP500 [https://seekingalpha.com/symbol/SP500]) and the tech-heavy Nasdaq Composite (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]) scaled [https://seekingalpha.com/news/4493725-sp500-nasdaq-composite-dow-jones-stock-market-news-today] new record highs after the PPI data. Here are some exchange-traded funds that track the S&P (SP500 [https://seekingalpha.com/symbol/SP500]): (NYSEARCA:SPY [https://seekingalpha.com/symbol/SPY]), (NYSEARCA:VOO [https://seekingalpha.com/symbol/VOO]), (NYSEARCA:IVV [https://seekingalpha.com/symbol/IVV]), (NYSEARCA:RSP [https://seekingalpha.com/symbol/RSP]), (NYSEARCA:SSO [https://seekingalpha.com/symbol/SSO]), (NYSEARCA:UPRO [https://seekingalpha.com/symbol/UPRO]), (NYSEARCA:SH [https://seekingalpha.com/symbol/SH]), (NYSEARCA:SDS [https://seekingalpha.com/symbol/SDS]), and (NYSEARCA:SPXU [https://seekingalpha.com/symbol/SPXU]).

See below for various reactions to the August PPI:

LEO NELISSEN [https://seekingalpha.com/author/leo-nelissen], PART OF INVESTING GROUP IREIT+HOYA CAPITAL:

"The cold PPI report shows that companies absorb most of the tariffs for now. It also gives Powell a chance to cut rates, something that the president has 'requested' for a long time.

However, given the muted reaction of long-term bonds and the dollar, it seems the market isn't as impressed as one might think, likely because one cut in the next meeting has already been priced in."

CHRIS LAU [https://seekingalpha.com/author/chris-lau], INVESTING GROUP LEADER OF DIY VALUE INVESTING:

"The 1.7 percent drop in margins for final demand trade services accounted for the bulk of the unexpected PPI decline in August. The BLS defines 'trade indexes measure changes in margins received by wholesalers and retailers.'

The 3.9% margin decline for machinery and vehicle wholesaling is also an eye-opener.

The headline PPI modestly supports a call for the FOMC to cut rates by 25 bps. Higher tobacco product prices (2.3%), the index for beef and veal, poultry, and electric power matter to the everyday consumer. They are still experiencing higher costs on items that matter."

See Chris' CPI preview here [https://seekingalpha.com/article/4819195-what-might-make-august-cpi-report-come-in-very-hot].

MIKE ZACCARDI [https://seekingalpha.com/author/mike-zaccardi-cfa-cmt], SEEKING ALPHA ANALYST SINCE 2022:

"The August PPI report, while showing deflation at both the headline and core levels, wasn’t as dramatically dovish when drilling down into the details. For instance, Kevin Gordon at Schwab noted that the three-month annualized Core Goods inflation pace is elevated at 3.74%. Services inflation is heating up, too. Moreover, last month’s numbers, combined with July’s hot PPI figures, somewhat offset each other, putting us right back to square one.

Ultimately, not much changes for the Fed. August PCE inflation is likely to print near 0.30%, annualizing to about 4%. Tomorrow’s CPI report will provide color, but the market appears to be locking in on a 25-basis-point cut next Wednesday afternoon."

PARKER ROSS, GLOBAL CHIEF ECONOMIST AT ARCH CAPITAL GROUP:

"Altogether, this morning's report is likely to keep the Fed worried about tariff pass-through effects, given still hot core consumer goods inflation despite the headline miss.

On the other hand, broader price pressures do not look overly concerning.

On net, it is unlikely this week's data releases will sway the Fed from restarting the easing cycle next week."

RENAISSANCE MACRO RESEARCH:

"The PPI margins index fell 1.7% in August to its lowest level since April. This would tend to indicate weaker direct pass-through to consumer prices with tariffs likely being absorbed by the firms themselves."

DARIO PERKINS, MANAGING DIRECTOR OF GLOBAL MACRO AT GLOBALDATA.TSLOMBARD:

"Not sure tomorrow's CPI matters to the Fed at this point. It has decided that spiraling employment is a far greater risk than spiraling prices.

JOSÉ TORRES, SENIOR ECONOMIST AT INTERACTIVE BROKERS:

"Animal spirits are soaring because the well-received (PPI) print is bolstering probabilities that the Fed will deliver cuts during each of its last three meetings of 2025. Meanwhile, odds for a jumbo 50 reduction next week only increased marginally, although those chances could rise meaningfully if we get a miss on tomorrow’s more significant CPI release.

Similar to my commentary yesterday, which maintained that expectations for today’s PPI were too high, I believe the outlook for tomorrow’s Consumer Price Index (CPI) print is excessively elevated. Indeed, subdued energy costs, sluggish housing valuations, low rents and a lack of tariff-fueled cost pressures are likely to dampen the gauge’s increase."

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