CPI and PPI Data Raise Concerns of Economic Recession

The Consumer Price Index (CPI) rose 0.5% in January, its highest increase in three months, according to data released by the Bureau of Labor Statistics on Tuesday.[0] The year-over-year rate dropped to 6.2% from 6.5% in December, though the Core CPI, which excludes food and energy, was up 5.6% from a year earlier.

The Federal Reserve has been jacking up interest rates to try and tame inflation and prevent a recession, but economists are still concerned that the sources of inflation are tied to the hot labor market and rising wages, which will be difficult to bring down.[1]

The Fed has hinted at further rate hikes, with Federal Reserve Bank of Cleveland President Loretta Mester saying she saw a “compelling economic case” for rolling out a 50-basis-point hike, and St. Louis President James Bullard saying he would not rule out supporting such an increase in March.[2] The markets are currently pricing in a 18% chance of a 50-basis-point rise at the March meeting, with odds of approximately 82% that the increase will be 25 basis points.[3]

Meanwhile, the Producer Price Index (PPI) came in hot for the month of January, topping average economist estimates of 5.5%. The number was up 0.7% on a seasonally-adjusted month-over-month basis, versus estimates for a 0.4% increase. On an annualized basis, PPI likely rose 0.4%, a jump from a decline of 0.5% reported in December.[4] It is predicted by economists that the annual rate will decrease to 5.4%, lower than the 6.2% reported in

Overall, the economic data released this week has given more ammunition to the theory that the Fed’s campaign to raise interest rates and slow the economy will drag the economy into a recession this year.[5] Wall Street may desire a conclusion to Federal rate hikes, however, they also do not want to see the economy suffer.[6] It remains to be seen if the Fed will be able to bring inflation under control in the near future.

0. “U.S. Treasury yields slip as investors digest inflation data” CNBC, 17 Feb. 2023, https://www.cnbc.com/2023/02/17/us-treasury-yields-investors-digest-inflation-data.html

1. “Wholesale prices surge again, PPI shows, in sign U.S. inflation is unlikely to ease quickly” MarketWatch, 16 Feb. 2023, https://www.marketwatch.com/story/wholesale-inflation-surges-in-early-2023-ppi-shows-2efefb24

2. “Dollar soars to six-week high on hawkish Fedspeak By Investing.com” Investing.com, 17 Feb. 2023, https://www.investing.com/news/forex-news/dollar-soars-to-sixweek-high-on-hawkish-fedspeak-3006414

3. “S&P 500, Dow, Nasdaq finish mixed as Fed debate continues” Seeking Alpha, 17 Feb. 2023, https://seekingalpha.com/news/3937828-sp-500-dow-nasdaq-finish-mixed-as-fed-debate-continues

4. “Inflation data will test ‘disinflation’ optimism: What to know this week” Yahoo News, 12 Feb. 2023, https://news.yahoo.com/stock-market-week-ahead-consumer-price-index-inflation-retail-sales-172419890.html

5. “Consumers May Face ‘Reckoning’ As Inflation’s Descent Slows” Investopedia, 14 Feb. 2023, https://www.investopedia.com/consumers-face-reckoning-as-inflation-descent-slows-7109620

6. “Dow Jones Futures Fall But Market Rally Keeps Climbing; Shopify Leads 10 Earnings Movers | Investor’s Business Daily” Investor’s Business Daily, 16 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rally-keeps-climbing-shopify-roku-cisco-are-key-earnings-movers