PPI Follows CPI Trend of Cooling Inflation: What Does it Mean for Fed?

[00:00:00] Speaker 1: So, this sets it up for somewhat of the possibility of an up arrow this morning. Kevin Hanks, live with CBOE for our pre-Bell playbook. Good morning, Kevin Hanks, great to see you. Our PPI inflation read really, in the end, very encouraging on the heels of the CPI, is it not? [00:00:19] Kevin Hanks: Good morning, Nicole. Yeah, we're starting to stack up really good inflation data going forward. Now, this is two lower PPIs in a row, two lower CPIs in a row that we got yesterday. Here's the numbers. Headline, month-over-month PPI, unchanged, 0.0. That's better than the 0.2 expected. And so now, two months, we were down 0.3 a month ago, and we were unchanged this month. Year-over-year, PPI dropping from 5.5% to 4.7% year-over-year. Core, up 0.2. That was a tenth better than expected. Core, year-over-year, dropping from 4.7% to 4.2%. Within those numbers, here's some of the details. Final demand services, portfolio management prices, up 6.5%. Truck, transportation, of freight, down 1.8%. Final demand goods, they were down 0.7%, led by a 5.7% drop in the price of gasoline. Final demand energy, down 3.1%. Final demand goods, down 0.9%, or final demand foods, sorry, down 0.9%, and final demand goods, less food and energy, up a tenth. So, again, another inflation data dominated by lower energy prices. Gasoline down 5.7%. But these numbers are pretty indicative of lower inflation, and we're starting, Nicole, in my opinion, to stack up lower inflation readings that should affect what the Fed is thinking. I don't know what they're thinking, but certainly the inflation picture is starting to get significantly better, Nicole. [00:02:16] Speaker 1: And as I look at the CME tool and get that information here from our producers, thankful to them, because yesterday morning we were at 43%. That CPI, excuse me, came in yesterday, and it went down to 38%. This comes in, we're now at 32% likelihood of a September rate hike. That is 10% lower, more than 10% lower than yesterday morning. Pretty interesting to see that. Also, October yesterday morning, before the CPI and PPI, 57%, now 48%. December, which is now at 69%, was almost 75% yesterday morning. And January, 78% comes down to 74%. Very interesting to see this update as well, isn't it? [00:03:05] Kevin Hanks: Exactly right. All those numbers should be coming down. Now, for the ones in December, January, and further out, those are going to need more data before they come down. But I believe that Kevin Warsh does not have a higher interest rate idea. Now, he may be lowering the Fed balance sheet, decreasing it, which, in essence, is a tightening of policy. But his views on the Fed funds rate, where it comes to consumers, small businesses, and housing, look at the housing numbers, how sloppy they've been lately. I still think that's his focus. So we'll see. He's, remember, the end of August here, about somewhere between August 27th and 29th, he'll speak at Jackson Hole. That should be a very interesting speech as we get no August meeting. And then, leading up, we'll get more data ahead of the September Fed meeting, Nicole. [00:04:02] Speaker 1: It's a gift. I mean, Kevin Warsh has gotten a few gifts. I mean, right before when he first came on, oil came down substantially right as he started, if you remember. And we were saying that was a nice way for him to start. He didn't have to contemplate oil at 100. You know, it had come down. And now he's getting another gift with this wait and seat being probably A-OK, with the inflation reads stacking up being somewhat tamer. And this likelihood now of the rate hike at only 32%. [00:04:32] Kevin Hanks: Yeah, I think what happens with these rate hikes, they were starting to build in to the Fed's projections. And now they're starting to move. Number one, they're starting to move back in terms of their date. The September one has now dropped to a third. They will not raise interest rates if that is that sits at 30%. But the ones further out are starting to ease down as well and be pushed back. So I think you're seeing a pretty good setup here for stocks overall and as inflation continues to underperform and come down. Remember, the core CPI now sits at 2.5%. That is just a half percent above the Fed's target. [00:05:17] Speaker 1: Right. I will say within the PPI report, it was noted there was construction that was elevated and cost more. Whether it's AI-related, data center construction, that element could contribute to some inflation. That was one inflationary part within the PPI, but one small part. Let's move on and talk about jobless claims, 209,000. [00:05:44] Kevin Hanks: Jobless claims up slightly from last week, but still a strong indication of the labor market. Remember, that has, in the last two months, has moved from 4.3% to 4.1%. First-time filer for unemployment insurance, 209,000. The four-week average is still below 200,000. An incredibly strong labor market still continues. So, yes, slightly higher than last week, but still a historically low number for jobless claims. Nicole. [00:06:16] Speaker 1: I will leave it here, but I will say we have Hammock out. Hammock talking about the labor market is stable. My view is we need to act now. Too much growth could put additional pressure on prices. Okay, we'll have that to digest. Oh, yes, please. [00:06:36] Kevin Hanks: She wasn't a voter in 2025. She dissented when she was a voter in 2024 when they lowered rates. So she's been hawkish all along about interest rates, even when the Fed was lowering them. And so now that we're holding, she still remains more hawkish than most of the members of the Fed. [00:06:57] Speaker 1: Yeah, that's actually a great point, and I'm glad you added it. Thank you. Kevin Hanks, live there at CBOE. Thank you, Kevin. [00:07:06] Speaker ?: Thank you.