Suitably Flip

May PPI - Ambivalence Reigns. Or Maybe It Doesn't.

Today's report from the Labor Department showed wholesale inflation coming in at once hotter and colder than was expected.

Overall, the Producer Price Index rose by 0.2%, less than the 0.4% economists were expecting.  The core number however, excluding food and energy, rose 0.3%, higher than the expected 0.2%.

What's it mean?  Technically, the answer is: beats me.  But it may suggest that - compared to conventional wisdom anyway - energy prices were moving up more slowly last month than many thought, but that inflationary pressures of persistently high energy prices may have been seeping into other prices more quickly than was thought.

Perhaps less important than how we or the market interprets the data (at ten minutes after the opening bell, stocks are moving somewhat higher) is how Ben Bernanke and the Fed Governors interpret it.  They've made amply clear that they're basing future policy decisions largely on the newest inflation data, so we know they're parsing and digesting these numbers.

With 16 consecutive quarter point hikes to the Fed Funds rate in the rearview mirror (already one more than I was predicting), most analysts expect the Fed will boost again at their next meeting.  Bernanke's hawkish monetary policy and similarly inflation-conscious extra-curricular comments to date have kept a lid on (or an anchor around) stocks lately and market commentators have shifted from discussing whether or not the Fed will oversteer the ship by hiking once too many, to discussing whether or not it's a big deal that they oversteer.  They seem to take it for granted that, whether to ward off inflation at all costs or simply to earn his bonafides as an inflation fighter (and the resulting long-term market confidence that such reputation carries), Bernanke is willing to go a quarter point "too far" in the current tightening campaign.

Today's report is only half the May inflation story.  The thrilling conclusion comes tomorrow, with the release of the Consumer Price Index.  Last month, the CPI painted a markedly thornier picture than the relatively tame PPI, so we may be in for an exciting couple of days of market multifariousness.

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May PPI - Ambivalence Reigns. Or Maybe It Doesn't.

Today's report from the Labor Department showed wholesale inflation coming in at once hotter and colder than was expected.

Overall, the Producer Price Index rose by 0.2%, less than the 0.4% economists were expecting.  The core number however, excluding food and energy, rose 0.3%, higher than the expected 0.2%.

What's it mean?  Technically, the answer is: beats me.  But it may suggest that - compared to conventional wisdom anyway - energy prices were moving up more slowly last month than many thought, but that inflationary pressures of persistently high energy prices may have been seeping into other prices more quickly than was thought.

Perhaps less important than how we or the market interprets the data (at ten minutes after the opening bell, stocks are moving somewhat higher) is how Ben Bernanke and the Fed Governors interpret it.  They've made amply clear that they're basing future policy decisions largely on the newest inflation data, so we know they're parsing and digesting these numbers.

With 16 consecutive quarter point hikes to the Fed Funds rate in the rearview mirror (already one more than I was predicting), most analysts expect the Fed will boost again at their next meeting.  Bernanke's hawkish monetary policy and similarly inflation-conscious extra-curricular comments to date have kept a lid on (or an anchor around) stocks lately and market commentators have shifted from discussing whether or not the Fed will oversteer the ship by hiking once too many, to discussing whether or not it's a big deal that they oversteer.  They seem to take it for granted that, whether to ward off inflation at all costs or simply to earn his bonafides as an inflation fighter (and the resulting long-term market confidence that such reputation carries), Bernanke is willing to go a quarter point "too far" in the current tightening campaign.

Today's report is only half the May inflation story.  The thrilling conclusion comes tomorrow, with the release of the Consumer Price Index.  Last month, the CPI painted a markedly thornier picture than the relatively tame PPI, so we may be in for an exciting couple of days of market multifariousness.