BLS releases first Producer Price Index for 2023 diminishing hopes of a Fed pivot

Today the U.S. Bureau of Labor Statistics (BLS) released the PPI index report for January 2023.

“The Producer Price Index for final demand increased 0.7 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.2 percent in December 2022 and advanced 0.3 percent in November. On an unadjusted basis, the index for final demand rose 6.0 percent for the 12 months ended January 2023”

According to the Wall Street Journal, “The PPI increased 0.7% in January from the prior month, compared with a revised 0.2% drop in December, and significantly faster than the 0.2% average monthly rise in the year before the pandemic.”

The report revealed that the index for final demand goods moved up 1.2% in January, the largest increase since rising 2.1% in June 2022. The report also revealed that approximately one-third of the rise in January for final demand goods can be directly attributed to gasoline which increased by 6.2%. Concurrently the report said that fresh and dried vegetables had a noteworthy decrease of 33.5%.

The PPI index is a precursor to the upcoming CPI and PCE inflation indexes because wholesale prices will always carry over to the retail sector. Based on the numbers released it is clear that inflationary pressures continue to remain sticky or persistent. If this trend continues it will force the Federal Reserve to be more aggressive in its current monetary policy. That implies that the Fed will raise rates higher than its current target of 5.1%, and that the Fed funds will remain elevated for a longer time.

Market participants that had hoped that the Federal Reserve would not follow through with continued rate hikes and implement a pivot from rate hikes to rate cuts rates now face the stark realization that a pivot is unlikely.

Recent reports as they pertain to gold pricing indicate a strong likelihood that gold will continue to trade lower. As of 5:00 PM EST, the most active April gold futures contract is currently unchanged and fixed at $1845.30. The dollar is only fractionally higher gaining 12 points (+0.12%), and the dollar index is currently fixed at 103.965.

Wishing you as always good trading,