Yesterday the Consumer Price Index (CPI) was all the rage as mortgage rates fell at the second fastest pace this year, today the Producer Price Index (PPI) was released but the message was a bit different.
While PPI has a lesser impact on interest rates than CPI, there have been some recent examples where it has impacted markets for better or worse, and with this morning's announcement it looked as though we might see another example, not a good one.
The new headline and a revision to last month's numbers put the annual producer price index at 0.5% higher than market expectations. If that were to happen with the CPI, interest rates would certainly spike. Even if it were a producer price index issue, it wouldn't be surprising to see at least some upward pressure today.
However, interest rates have started to decline, although not by a large margin. Nevertheless, the improvement seen in the wake of such figures requires an explanation – in this case, it is because the underlying factors in the PPI data are not reflected in the consumer inflation measures that guide interest rate policy.
In other words, while a rise in the PPI can signal upward pressure on PCE inflation data (the broadest national measure of the Consumer Price Index and the one most closely watched by the Fed), that was not the case with today's report. Bonds initially panicked briefly before gently moving into rising territory and remaining there throughout the day without any drama.
The average lender would only be able to cut interest rates a little, but even if the victory were limited to maintaining yesterday's wins, that would be victory enough.