The PPI was hotter than expected, and that was on top of huge positive revisions. But long-term bond yields dropped. Why?
On top of a hot CPI report, the BLS Producer Price Report was even hotter after accounting for revisions.
Revisions and Expectations
Discounting the positive revisions, the PPI rocketed 0.9 percent. The core PPI (excluding food and energy) rocketed 0.7 percent.
PPI Final Demand Key Detail Month-Over-Month
- PPI: +0.4 Percent
- Services: +0.3 Percent
- Goods: +0.6 Percent
- Excluding Food and Energy: +0.3 Percent
- Food: +1.1 Percent
- Energy: +1.7 Percent
Final demand services is about 67 percent of the index.
The services component is also what the Fed is most concerned about.
PPI Final Demand Services
Things are seriously headed in the wrong direction starting January 2024.
December 2023 marked the low in year-over-year services at 1.8 percent.
PPI Final Demand Year-Over-Year
PPI Year-Over Year Details
- Final Demand: 3.5 percent up from low of 0.3 percent in June 2023.
- Final Demand Goods: 2.3 percent up from low of -4.3 percent in June 2023.
- Final Demand Services: 4.1 percent up from low of 1.8 percent in December 2023.
Things are not headed in the right direction.
Bond Market Reaction
The most interesting thing today is the bond market reaction. Yields at the long end of the curve dropped.
For example, the 10-year note declined 12 basis points from 4.64 percent to 4.52 percent.
A plausible explanation is Trump delayed reciprocal tariffs. I will discuss this separately.
CPI Much Hotter than Expected, Core CPI Hotter than Expected
Yesterday, I noted CPI Much Hotter than Expected, Core CPI Hotter than Expected
CPI Hotter than Expected
- CPI: Bloomberg Consensus 0.3% v Actual 0.5%
- Core CPI Excluding Food and Energy: Bloomberg Consensus 0.3% v Actual 0.4%
- CPI Year-Over-Year: Bloomberg Consensus 2.9% v Actual 3.1%
- Core CPI Year-Over-Year: Bloomberg Consensus 3.1% v Actual 3.3%
The Fed will not be cutting rates anytime soon at this pace.
Of course, tariffs and a huge global trade war could crash the economy.
President Trump will have a caniption as auto loans and house mortgage fall into the gutter with high interest rates and high insurance rates.
Talk about disappointing. I was hoping Trump’s “BIG” announcement on reciprocal tariffs would start immediately. Instead we have a study till sometime in April or later to assess the situation. BFD.
He wimped out again. How are we going to pay down the deficit, pay off the debt, and wipe out income taxes if we never actually collect any tariff money?
The bond market rallied because of a lot of momentum traders were net short after the CPI release. So naturally the market maker banks moved prices up today to trigger their stop losses. The economic data is just a side show to positioning and bank greed.
Yes, indeed. I give far more credence to the weekly/monthly closes in the bond market and ignore the day to day gyrations from whatever economic/political news hits the wires.
That’s pretty bad news for consumers but more importantly for the Fed. The PPI is co-integrated with the CPI, and, naturally, the PPI is a leading indicator of future CPI inflation. With fiscal policy completely out of control and real short-term rates as set by the Fed too low, we seem to be headed for a repeat of the 1970s inflation cycle. There may need to go through the Paul Volcker inflation therapy approach again.
Just bought a $1100 refrigerator with tax and all, but the Best Buy site was kinda un-colorful and clunky, as if they werent particularly interested in selling anything, like I was an inconvenience.
One area of concern is electrical transformers. There is a huge backlog; ranging from 1-4 years depending on the type of unit. This is crimping the build out of AI, data centers, crypto, and the increasing electrification of our economy. It’s a big bottleneck.
Costs are climbing and are already up 60-80%. Transformers use a lot of silicon steel, copper and aluminum.
https://www.powermag.com/the-transformer-crisis-an-industry-on-the-brink/
One area of gorgeous charts is the electric utility inflation chart.
https://data.bls.gov/generated_files/graphics/APU000072610_993078_1739490168273.gif
Yes. Whether it’s generation or distribution, we cannot meet demand, so prices will have to rise.
Big techs are already circling their wagons to pour on the biggest tsunami of censorship and service denial ever seen. Craven and lawless. Using mindless and pervasive A.I. to stifle all dissent, even the president. Comment and chat boards are dropping like flies. Best of luck to you Mish in keeping glasnost alive!
Like all storms and disasters, the destructive energy eventually peters out and the sunshine returns. The rebuild will be better and stronger.
We don’t even need ai or anything fancy… morons follow us simply because they don’t know and can’t be told any better.
Already it is barreling fast into an outright war on the American people and their elected government by the inflationist gov/edu/med/pharma/insuro/monetary/bankster/media/tech cartels, lobbies, and cabals.
Many desperate and strange alliances are forming amongst them with no level of criminality shied away from as they battle to thwart their inevitable doom.
We will be punished and pummeled by crushing inflation, disruption, dysfunction, and shortages in this barrage. Are you ready for it?
I believe most of us are.
As their feudal power breaks apart, they will soon be eating each other.
I would say your gun slinging days are ending. Hopefully gradually. But the US is still the least sickly. Hence the gold rally. Gold has a way of screwing people over though, so I don’t indulge anymore. I might regret that, but then one has to have it in their hands and deal with the legalities.
There’s bitcoin
… and $melania
Yields dropped partially because of the Trump/Putin summit in Saudi Arabia which will likely end the Ukraine war and open up the energy flow from Russia. Oil prices down, means inflation expectations down.
Baaaaahahahahaaaa! Good one.
So now we get real numbers without these drastic revisions during the Biden administration. That fool Powell now takes inflation seriously since Trump entered office even as the public saw prices were escalating.
I don’t trust any of these garbage government numbers. Need independent agencies within the GAO to supply these numbers or even independent auditing companies.
No need to worry. Trump will eliminate most government agencies and make up the numbers like he always does.
That article on politico yesterday made the point the government was making up the numbers anyway. At worst Trump will just cut out the middlemen.
https://www.politico.com/news/magazine/2025/02/11/democrats-tricked-strong-economy-00203464
Yessiree, Old Jerome hustled to lower rates starting in September when the left began to realize the sheeple would bolt and vote for Trump due to the III index (illegal invader-caused inflation).
Now, he says that HE MUST PAUSE!!!
I believe Trump will punk ‘n dunk on jerome. As he did in 2018.
To preempt Trump’s 25% demand for good was was rising, stealing from
the future. Inventory plunges. The risk in the stock market is growing. The DJI might turn down on the weekly and on the monthly charts.
Nobody lives forever, and stealing from the unborn is easy.
The reason for the rally in the bond market (and equities) was today’s PPI showed softer price gains in health care, airlines, and financial services sectors. They feed directly into the core PCE report coming out later this month.
The bond market sees through the state-sponsored media’s tariff and DOGE hysteria and likes what it sees. There is no other plausible explanation.
The bond market knows if the economy crashes yields will have to go to zero or negative to revive this dead horse. That’s the real risk here. I just wish Trump would stop post-poning those tariffs.
What – you never heard tell of stagflation?
Have you heard of the Titanic? It was a ship carrying 80m geezers in the Atlantic. The ship was so heavy with dead weight that it hit an iceberg and began to sank.
The passengers were worried so they swapped out a senile old captain for a different senile old captain who promised to stop the ship from sinking.
The new captain decided to fire the bosun, pursers, the medical staff, engineers because they were costing “too much money” and weren’t loyal enough. Then he decided to impose tariffs on passengers from different countries because they were “ripping off” the Titanic.
Then the captain decided it would be a good idea to shuffle the deck chairs around and remove all different religious material from the ship so that it could be focused on just one religion.
Finally, he instructed his best man, a billionaire on board, to start bailing water with tea cups because to do anything else would be so uncivilized.
The rest of the story is history.
Cool story, bro
It’s 100% the Trump and GOP economy now. 100%
But don’t worry Mish, 100% tariffs are going to fix everything. The “studies” will be done by April 1 and then it’s a go….no more tariff tease.
Trump? He’s on the golf course mostly… we roll him out to make the morons cheer from time to time. Did you not see my kid tell him to shut up while I was talking behind the resolute desk? Did you not see him shut up immediately?
You guys just aren’t paying attention, and that bothers me. I’m not getting all the love I deserve.
Oh I saw it and enjoyed every minute.
We call his chair “the cuck chair” now, because he likes to watch.
We need to remove all sanctions on Russia so their oil & gas can flow freely onto world markets and help reduce inflation.
Laughing Kremlin Insiders Say Trump Has Given Putin Greenlight to Expand the War https://www.msn.com/en-us/politics/international-relations/laughing-kremlin-insiders-say-trump-has-given-putin-greenlight-to-expand-the-war/ar-AA1yYnN1
Russia’s going to do what Russia’s going to do without regard to what any American politician has to say about it. Ukraine had its chance to do things the easy way in Istanbul in 2022, but Sullivan and Blinken forbade it (and sent Boris Johnson as their messenger boy).
lets go with UK instead
Giant gas field discovery could power Britain for a decadeExploiting the find could add up to £112bn to GDP and create tens of thousands of jobs https://www.telegraph.co.uk/business/2025/02/13/giant-gas-field-discovery-could-power-britain-for-decade/
How Dare You!
The UK should develop that. Maybe it’ll be ready in ten years. More likely, they’ll skip it on account of global warming.