Market Overview

March PPI Ex-Food, Energy Rose More than Expected


The Producer Price Index tracks the change in the selling price of goods and services sold by manufacturers. It is a leading indicator of consumer price inflation, because producers tend to relay higher costs to consumers through higher prices.

With the economic volatility associated with rising price levels, the Fed often will raise interest rates to check inflation, given a high growth economic environment. On the other hand, low or falling PPI is indicative of declining prices, and may suggest an economic slowdown.

Below is a list of today's headline reading compared to analyst estimates:

  • Producer Price Index MoM 0.0% vs 0.3% Est; Prior 0.4%
  • PPI Ex Food & Energy MoM 0.3% vs 0.2% Est; Prior 0.2%
  • Producer Price Index YoY 2.8% vs 3.1% Est; Prior 3.3%
  • PPI Ex Food & Energy 2.9% vs 2.8% Est; Prior 3.0%

According to the Bureau of Labor Statistics, the Producer Price Index for finished goods was unchanged in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.4 percent in February and 0.1 percent in January.

At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.7 percent in March, and the crude goods index declined 2.5 percent. On an unadjusted basis, prices for finished goods moved up 2.8 percent for the 12 months ended March 2012, the smallest year-over-year increase since a 2.7-percent rise in June 2010.

US equity futures saw an initial move lower after the 8:30 a.m. ET release, likely from the worse than expected reading in jobless claims. Currently, Dow Jones Industrial Index Futures are trading about 21 points higher in pre-market trading.


Traders who believe that PPI is a leading indicator for the US economy, you might want to consider the following trades:
  • Trade the US Dollar (NYSE: UUP). If after a long string of higher inflation, the Fed will likely increase interest rates to stabilize growth, given a favorable economic environment. However, since the Fed promised to keep rates low until 2014, increasing inflation should cause the US Dollar to weaken.
  • Also, long pharmaceutical companies like Pfizer (NYSE: PFE) or Mylan (NYSE: MYL) as demand generally is inelastic with drugs.
Traders who believe that PPI is not a leading indicator for the US economy, you might want to consider the following trades:
  • Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if people have less money, they still need to buy staple products like shampoo and toothpaste.
  • Also, short big-ticket appliance makers like Whirlpool (NYSE: WHR) as demand is more elastic.
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