What is PPI and how does it affect the market? 🏦

5 MIN READ
Crypto News
11 August 2023
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The PPI is an important indicator of economic activity that measures average changes in prices for goods and services at the producer level.

CPI data have an impact on the Central Bank's economic decisions because:

1. This indicator is an indicator of inflationary pressures in the economy. An increase in the CPI indicates an increase in prices for final products = a potential increase in consumer inflation (CPI).

2. Central banks and the Federal Reserve monitor the CPI to formulate monetary policy. An increase in the index may lead to an increase in the interest rate to curb inflation.

3. The CPI affects business. An increase in the index may push businesses to raise prices for final consumers.

4. This indicator is also an indicator of economic activity. A rise in prices may indicate an increase in demand.

Therefore, the publication of the CPI, as one of the key economic indicators, has an impact on the markets, as this indicator directly affects expectations of inflation data and the Fed's interest rate decision. Understanding the CPI helps to predict the future, as it is considered a leading indicator of consumer inflation.

 

Producer Price Index today:
Expectation 0.2%
Actual 0.3%

What does this mean and how will it affect the market?

The increase in the index directly indicates that the rate of decline in inflation has slowed and reversed. The cost of production has increased, which will affect the final cost for consumers.

The markets' reaction is clear: positive for the dollar, negative for risky assets.

The growth of this indicator may encourage the Fed to continue its rather tight monetary policy. We have already written that it is too early to expect a rate cut. We recommend that you read it again to keep abreast of current events and expectations.

The dollar is strengthening. Investors are better off staying in the dollar at times like this. The stock and crypto markets reacted calmly, with almost no decline, but in a global perspective, this rise may be more negative for the markets than it seems. In parallel, we may see an overflow of $ into bonds, which will also hit the markets.

Important. Yesterday we received inflation data (more on CPI),  which showed a positive trend, rising less than expected. The CPI is one of the most important indicators for the Fed, and they will be paying attention to these indicators before the Fed meeting in September. There is no strong negative data at the moment, so a halt in rate hikes is not far off. Such news can help risky assets like crypto.

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