Market Overview

March PPI Rose Less than Expected as Inflation Remains in Check


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 0.4% vs 0.5% Est
  • PPI Ex Food & Energy MoM 0.2% vs 0.2% Est
  • Producer Price Index YoY 3.3% vs 3.3% Est
  • PPI Ex Food & Energy YoY 3.0% vs 2.9% Est

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

At the earlier stages of processing, the index for intermediate goods moved up 0.7 percent and crude goods prices increased 0.4 percent. On an unadjusted basis, the finished goods index rose 3.3 percent for the 12 months ended February 2012, the smallest year-over-year rise since a similar 3.3-percent advance in August 2010.

US equity futures saw an initial move higher after the 8:30 a.m. ET release. Currently, Dow Jones Industrial Index Futures are trading about 17 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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