Morning Market Brief: October 12, 2023

US producer prices driven higher by energy costs

The latest data from the US Department of Labor points to an increase in producer prices, driven by higher energy and food costs. The increase is expected to influence US Federal Reserve Board (Fed) policy, potentially supporting the case for an extended period of elevated federal funds rates.?

• In September, core producer prices in the US rose by 2.7% from the previous year. The uptick surpassed market expectations of a 2.3% rise and compares to a revised 2.5% in August.
• On a monthly basis, core producer prices rose by 0.3% in September, reflecting the impact of escalating costs in essential sectors. Inflation pressures stemmed from final demand goods.
• Some sectors seem less affected by the tight monetary policy environment. Much of the impetus for the increase in producer prices came from food and energy, which seem less influenced by tight policy.
• Consumer price inflation data is released today. The latest inflation data should reveal the inflationary pressure from all sectors, including those that might not be as impacted by traditional monetary policy.

The Fed’s evaluation of the most appropriate decisions to support price and economic stability will be challenged by incoming inflation data. If inflation remains stickier than expected, it could have repercussions on policy decisions. However, some central bank policymakers have recently pointed to rising Treasury yields to suggest that more rate increases might not be necessary. The Fed’s target inflation is 2% annually, which it doesn’t expect to reach in the short term. When it comes to constructing your portfolio, a long-term view is critical, especially considering near-term market fluctuations.

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