|

United States annual producer inflation drops to 5.5% in June vs. 6.2% expected

Producer inflation in the United States, as measured by the change in the Producer Price Index (PPI), declined to 5.5% on a yearly basis in June from 6% in May, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in below the market expectation of 6.2%.

On a monthly basis, the PPI declined by 0.3%, following the 0.6% increase recorded in May and improved compared with analysts' estimate for no change.

Other details of the report showed that the PPI ex Food & Energy was up 0.2% and 4.7% on a monthly and yearly basis, respectively.

Market reaction

The US Dollar (USD) comes under modest bearish pressure following this report and the USD Index retreats from session highs. At press time, the USD Index was trading marginally lower on the day near 100.90.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

AUD/USD eyes 0.7000 on softer USD, ahead of Chinese data

AUD/USD consolidates below 0.7000 in Wednesday’s Asian session, ahead of China's inflation and trade balance data. However, focus will be on the US consumer inflation figures, which will drive the US Dollar and provide a fresh impetus. Meanwhile, the recent pullback in US bond yields keeps the USD below an 18-month low, though hawkish Fed and geopolitical risks limit losses, capping the currency pair.

USD/JPY consolidates below 158.50; looks to US CPI for fresh impetus

USD/JPY steadies below mid-158.00s during the Asian session on Wednesday, with looming intervention risks supporting the Japanese Yen and capping the upside amid a softer US Dollar. However, geopolitical uncertainties act as a tailwind for the safe-haven USD and the currency pair. Traders also seem hesitant ahead of the release of the latest US consumer inflation figures.

Gold: Bears struggle to breach below $4,150

Gold now gives away its initial gains and resumes its decline, revisiting the $4,160 region per troy ounce on Tuesday. The precious metal’s pullback comes despite the fresh downward trend in the Greenback in combination with a mixed performance of US Treasury yields across the board and easing tensions on the geopolitical front.

Ethereum holds $2,500 as open interest drops to lowest level since February
Ethereum (ETH) quickly bounced back above $2,500 on Tuesday after sharp Asian equity selloffs briefly spilled into the crypto market. South Korea's KOSPI declined 5.4% while Japan's Nikkei 225 dropped by 1.8%. The volatility spike bled into cryptocurrencies, triggering a cascade of forced liquidations.
S&P 500 earnings just hit a record. The AI data centre bill hasn't landed yet
S&P 500 companies are on track for a third straight quarter of earnings growth above 25%, according to FactSet. Their profit margin hit 17% in the April-June quarter, the highest in FactSet data going back to 2009. The cash behind those earnings has been shrinking for two years, and almost all of the shrinkage is in the handful of companies building data centres for artificial intelligence (AI).
Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?