producer price index

Britain's consumer price index fell 0.1% in January, not as sharply as analysts had expected; they were expecting an average fall of 0.2%. Year over year inflation reached 5.5%, a new record since March 1992. There are plenty of signs that peak inflation is near, but the big question is how quickly price growth will return to its 2% target and what effort it will take from the Bank of England.

Signs that UK Inflation peak is close - 1

Among signs of a cooling inflation outlook we highlight the second month of slowing producer prices to 13.6% yoy in January against 13.9% and 15.2% in the previous two months. This is an early indicator which allows us to expect less pressure from commodity prices on producers further down the line, which will cool consumer inflation in the coming months.

Among the early indicators of inflation around the world is also the Chinese producer price index, which noted a slowdown in January to 9.1% from 10.3% a month earlier and a peak of 13.5% in October.

Signs that UK Inflation peak is close - 2

The publication of the UK inflation ac

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Inflation Has Already Peaked. Has Gold Peaked Too?

Arkadiusz Sieron Arkadiusz Sieron 18.10.2021 11:50
Inflation reached its peak in June, but it doesn’t mean it will go away. The more persistent it is, the higher the odds of a rosy outcome for gold. The August CPI report makes it clear: inflation has already peaked. As the chart below shows, both the overall and core CPI have reached their fastest pace in June 2021. The former index surged 5.3% four months ago, while the latter soared 4.5%. Since then, we have been observing very gradual deceleration in the annual inflation rates. The noticed slowdown seems to confirm the central bank’s narrative that the inflationary surge is transitory. However, in a few past editions of the Fundamental Gold Report, I argued that the fact that inflation had peaked doesn’t mean that it would go away anytime soon. In particular, I pointed out the rallying Producer Price Index (as the supply-crisis is far from being resolved), the gradually rising index for shelter, and soaring home prices, which should translate into higher consumer prices in the future. As the French adage goes, nothing lasts like the temporary. The policymakers always describe unpleasant developments as “transitory problems” (just think of all the taxes introduced only for a while!), as magical thinking that the troubles will somehow resolve themselves is much more convenient than confronting the harsh reality and taking decisive actions. Of course, there is a grain of truth in the Fed’s line of thinking. After all, compared to the long run, not to mention the cosmological timescale, higher inflation will prove to be temporary. Yes, it was sarcasm, but Powell and his colleagues are, in a sense, right about transitory inflation. You see, as the market saying goes, the cure for high prices is high prices. As you can recall from your economics 101 class, prices are set by supply and demand. And when prices rise, producers are willing to sell more, while consumers are willing to buy less. Hence, a surge in the price of a given commodity will result in reduced demand and/or boosted supply. As a result, the price will decrease. We have recently observed this mechanism in action in the lumber market. As the chart below shows, lumber surged during the post-pandemic recovery, doubling its price from February 2020 by May 2021, but now it’s just about 30% higher than before the pandemic. The chart doesn’t lie, does it? So, inflation is transitory, as high prices are indeed a cure for high prices. Lumber’s fate is what’s waiting for all goods. But not so fast. This mechanism works only under certain conditions. It clearly doesn’t apply to hyperinflation, where surges in prices cause a decline in demand for money (consumers lose faith in a currency and try to spend their money as quickly as possible) and, in turn, even stronger price surges. Even more importantly, it applies only to market-specific supply issues, not to the general, economy-wide inflation. When higher prices are a result of idiosyncratic supply constraints, the market forces will work to bring the equilibrium back, curbing the price. For example, the producers of lumber could have outbid other entrepreneurs to obtain necessary inputs and expand their capacity to eliminate the shortage of lumber. However, when almost all prices go up, the situation is different, as all entrepreneurs cannot expand their capacities at the same time because all the inputs are scarce. Why do we know that the current inflation is broad-based and also demand-related rather than caused merely by supply disruptions? Well, the obvious clue is simply the number of markets that are experiencing shortages and sharp price rallies. The supply-chain crisis is not limited to lumber and semiconductors, it covers practically all commodities and many intermediate goods. In such a situation, the root cause of inflation must be excessive demand compared to supply. As I explained earlier in the Gold Market Overview, the consumer expenditures on goods surged 15% over the pandemic. Such an increase over a relatively short period turned out to be difficult to handle by entrepreneurs, especially under epidemic conditions, thus shortages emerged. But these supply-chain problems are ultimately demand-driven, as the supply-side of the economy simply cannot satisfy the consumers’ demand. To be clear, this extra demand hasn’t emerged out of nothing. It’s happened due to a shift in expenditures from services into goods and also because it’s the child of the Fed’s easy monetary policy and lax fiscal policy. The broad money supply is about 33% greater than it was before the pandemic (see the chart below). The widened fiscal deficits financed checks to Americans, which made inflation less limited only to financial assets and more broad-based. What does it all imply for the gold market? Well, the point is that the current inflation is more demand-driven than the Fed is ready to admit. As a result, my bet is that it will be more persistent than the central bank officially claims. More stubborn inflation may accelerate the Fed’s tightening cycle, which would hit the gold market. On the other hand, persistent inflation could at some point rattle the markets, boosting the demand for gold as a safe-haven asset and an inflation hedge. High inflation also implies subdued real interest rates, which should support gold prices. Last but not least, the more persistent elevated inflation is, the higher the odds of inflationary expectations de-anchoring and stagflation taking place, in which gold should shine. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Another Inflation Twist

Another Inflation Twist

Monica Kingsley Monica Kingsley 14.12.2021 15:45
S&P 500 gave up premarket gains, and closed on a weak note – driven by tech while value pared the intraday downswing somewhat. Market breadth still deteriorated, though – but credit markets didn‘t crater. Stocks look more cautious than bonds awaiting tomorrow‘s Fed, which is a good sign for the bulls across the paper and real assets. Sure, the ride is increasingly getting bumpy (and will get so even more over the coming weeks), but we haven‘t topped in spite of the negative shifts mentioned yesterday. The signs appear to be in place, pointing to a limited downside in the pre-FOMC positioning, but when the dust settles, more than a few markets are likely to shake off the Fed blues. I continue doubting the Fed would be able to keep delivering on its own hyped inflation fighting projections – be it in faster taper or rate raising. Crude oil is likewise just hanging in there and ready – the Fed must be aware of real economy‘s fragility, which is what Treasuries are in my view signalling with their relative serenity. We‘ve travelled a long journey from the Fed risk of letting inflation run unattented, to the Fed making a policy mistake in tightening the screws too much. For now, there‘s no evidence of the latter, of serious intentions to force that outcome. Lip service (intention to act and keep reassessing along the way) would paid to the inflation threat tomorrow, harsh words delivered, and the question is when would the markets see through that, and through the necessity to bring the punch bowl back a few short months down the road. As stated yesterday: (…) Global economic activity might be peaking here, and liquidity around the world is shrinking already – copper isn‘t too fond of that. The Fed might attempt to double the monthly pace of tapering to $30bn next, but I doubt how far they would be able to get at such a pace. Inflation and contraction in economic growth are going to be midterms‘ hot potatoes, and monetary policy change might be attempted. Tough choices for the Fed missed the boat in tapering by more than a few months. 2022 is going to be tough as we‘ll see more tapering, market-forced rate hikes (perhaps as many as 2-3 – how much closer would yield curve control get then?), higher taxes and higher oil prices. Stocks are still likely to deliver more gains in spite of all the negative divergences to bonds or other indices (hello, Russell 2000). Copper would be my indicator as to how far further we have to go before GDP growth around the world peaks. Oil is ready for strong medium-term gains, and I‘m not looking for precious metals to yield much ground. Silver though is more vulnerable unless inflation returns to the spotlight. Cryptos do likewise have issues extending gains sharply. All in all, volatility is making a return, and it isn‘t a good news for the bulls. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 ran into headwinds, and fresh ATHs will really take a while to happen, but we‘re likely to get there still. Credit Markets HYG didn‘t have a really bad day – just a cautious one. Interestingly, lower yields didn‘t help tech, and that means a sectoral rebalancing in favor of value is coming, and that the current bond market strength will be sold into. Gold, Silver and Miners Precious metals held up fine yesterday, but some weakness into tomorrow shouldn‘t be surprising. I look for it to turn out only temporary, and not as a start of a serious downswing. Crude Oil Crude oil continues struggling at $72, but the downside looks limited – I‘m not looking for a flush into the low or mid $60s. Copper In spite of the red candle(s), copper looks to be stopping hesitating, and is readying an upswing. I look for broader participation in it, and that includes commodities and silver. The run up to tomorrow‘s announcement would be telling. Bitcoin and Ethereum Bitcoin and Ethereum bottom searching goes on, yesterday‘s downside target was hit, and the bulls are meekly responding today. I don‘t think the bottom is in at $46K BTC or $3700s ETH. Summary Risk-off mood is prevailing in going for tomorrow‘s FOMC – the expectations seem leaning towards making a tapering / tightening mistake. While headwinds are stiffening, we haven‘t topped yet in stocks or commodities, but the road would be getting bumpier as stated yesterday. Select commodities and precious metals are already feeling the pinch late in today‘s premarket trading, but there is no sending them to bear markets. Get ready for the twin scourge of persistent inflation and slowdown in growth to start biting increasingly more – just-in producer price index (9.6% YoY, largest ever) confirms much more inflation is in the pipeline, and the Fed would still remain behind the curve in its actions. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Tough Choices Ahead

Tough Choices Ahead

Monica Kingsley Monica Kingsley 15.12.2021 15:51
S&P 500 declined on poor PPI data, with financials virtually the only sector closing in the black. Rising yields and risk-off credit markets, that‘s the answer – markets are afraid of a more hawkish Fed than what they expect already. While the central bank will strive to project a decisive image, I‘m looking for enough leeway to be left in, and packaged in incoming data flexibility and overall uncertainty. Good for them that the fresh spending initiative hasn‘t yet passed. Still, I‘m looking for the Fed to be forced during 2022 to abruptly reverse course, and bring back the punch bowl. Treasuries look serene, and aren‘t anticipating sharply higher rates in the near term – not even inflation expectations interpreted higher PPI as a sign that inflation probably hasn‘t peaked yet. This isn‘t the first time inflation is being underestimated – and beaten down commodities (with copper bearing the brunt in today‘s premarket) reflect that likewise. Only cryptos are bucking the cautious entry to the Fed policy decision, and decreasing liquidity, in what can still turn out as a lull before another selling attempt. I think that the overly hawkish Fed expectations are misplaced, and that the risk-on assets would reverse the prior weakness – both today and in the days immediately following, which is when the real post-Fed move emerges. Odds are that it would still be up across the board. Yes, I‘m looking for the Fed speak to be interpreted as soothing – as one that would still result in market perceptions that the real bite isn‘t here yet, or doesn‘t look too real yet. Big picture is that public finances need inflation to make the debt load manageable, and that ample room to flex hawkish muscles isn‘t there (as retail data illustrate). As I wrote in yesterday‘s summary: (…) Risk-off mood is prevailing in going for tomorrow‘s FOMC – the expectations seem leaning towards making a tapering / tightening mistake. While headwinds are stiffening, we haven‘t topped yet in stocks or commodities, but the road would be getting bumpier as stated yesterday. Select commodities and precious metals are already feeling the pinch late in today‘s premarket trading, but there is no sending them to bear markets. Get ready for the twin scourge of persistent inflation and slowdown in growth to start biting increasingly more – just-in producer price index (9.6% YoY, largest ever) confirms much more inflation is in the pipeline, and the Fed would still remain behind the curve in its actions. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 had a weak day, but the dip was being bought – there is fledgling accumulation regardless of deteriorating internals, and tech selloff continuing. Credit Markets HYG even staged a late day rally – bonds are in a less panicky mood, not anticipating overly hawkish Fed message. And that‘s good for the markets that sold off a bit too much. Gold, Silver and Miners Precious metals downside appears limited here, and today‘s premarket downswing has been largely erased already. Much catching up to do on the upside, just waiting for the catalyst. Crude Oil Crude oil is on the defensive now – the weak session yesterday didn‘t convince me. I‘m though still looking for higher prices even as today‘s premarket took black gold below $70. Still not looking for a flush into the low or mid $60s. Copper Copper upswing didn‘t materialize, and worries about the economic outlook keep growing. The sideways trend keeps holding for now though, still. Bitcoin and Ethereum Bitcoin and Ethereum bottom searching goes on, yesterday‘s downside target was hit, but the bottom (at $46K BTC or $3700s ETH) might not be in just yet. Cryptos remain in wait and see mode. Summary Bears aren‘t piling in before today‘s FOMC – the Fed‘s moves will though likely be interpreted as not overly hawkish. Given more incoming signs of slowing economy, the window of opportunity to tighten, is pretty narrow anyway. Why take too serious a chance? Yes, I‘m looking for the weakness in real assets to turn out temporary, and for stocks not to be broken by inflation just yet – as argued for in the opening part of today‘s analysis. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.