Producer and consumer prices still seeing growth, as global and domestic uncertainty maintains volatility

Producer price index

Final demand prices rose 0.5% in September, led by rising prices in final demand energy and other goods. The index less food, energy, and trade services grew by 0.2%, marking the fourth consecutive month of rising demand prices and staying consistent with August figures. On an annual and unadjusted basis, the producer price index (PPI) moved up 2.2%, the largest increase since April. Core PPI ticked down to 2.8% annual growth from 2.9% in August. Markets were generally still optimistic in reaction to this release, knowing that consumer price data would be published the following day.

Inflation stays stubborn

Consumer price index data for September was published last Thursday, with headline inflation coming in slightly above expectations at 0.4% month-over-month growth. Though this is a movement downward from August data, core CPI stayed consistent at 0.3%. On an annual basis, headline and core CPI grew by 3.7% and 4.1%, respectively. Shelter led the way this month after August’s energy boom, with the cost of shelter up 7.2% from this time last year.

Treasury yields popped up a bit on Thursday morning in response to the data release but were already working their way back down over the course of the day on Friday. The dollar also spiked on Thursday, rising by 0.8% in its biggest one-day jump since March of this year.

One potential red flag from Thursday’s figures is that the “supercore inflation gauge,” a metric that looks at core services prices exclusive of shelter, had a monthly gain of 0.61% in September. This is the biggest monthly gain for the measure in a year, and a marked increase from August’s figure of 0.37%. This news, in tandem with core inflation remaining persistently above the Fed’s 2% target, leaves uncertainty ahead on the FOMC’s next steps.

With the future of rates still unknown, and markets remaining unaligned with the Federal Reserve's path forward, it continues to be critical to have conversations around hedging interest rate debt. Given inflation’s persistence, companies with floating-rate debt may still want to consider entering into a swap to fix their debt.

Geopolitical considerations keep markets volatile

After the ousting of Rep. Kevin McCarthy as Speaker of the House, House Republicans have yet to unite behind a successor for the role. Republican representatives Steve Scalise and Jim Jordan were initially both being considered last week, with Rep. Scalise winning the first internal vote for the nomination. However, Rep. Scalise withdrew his name from consideration on Thursday night, and Rep. Jordan won the subsequent vote for the party's nomination. The House of Representatives will vote on Tuesday to try to select a new Speaker as it enters its third week without one, leaving the U.S. government about a month away from a potential shutdown and unable to make meaningful decisions on aid or response to the Israel-Hamas war.

On Thursday evening, the Israeli military ordered over one million people to evacuate from northern Gaza, setting a 24-hour deadline for the evacuation. It is possible that Israel is planning to launch a ground offensive into Gaza after launching several airstrikes into the Gaza Strip last week. This continued uncertainty in the Middle East, in conjunction with further U.S. sanctions on Russian crude exports, led to gains in both Brent and WTI crude prices last week.

Looking forward

Market participants should continue to monitor changing situations both domestically and abroad, as increased volatility in the interest rate and commodity spaces due to these factors is likely to continue. This week brings even more “Fedspeak” at a variety of conferences and events, which will be key to follow as this week marks two weeks before the next FOMC meeting. On the data side, fresh U.S. retail sales data is coming on Tuesday, as well as housing starts and existing home sales mid-week.