Favourable inflation readings get stock investors dreaming of peak Fed

(Alliance News) - Investors added a US producer price reading to the list of recent data suggesting inflationary pressures in the world's largest economy are easing.

Stocks celebrated the news. The Nasdaq Composite in New York, a benchmark famed for its tech constituents, was 2.2% higher on Tuesday afternoon in New York.

"Last week's lower-than-expected core CPI print raised hopes that the Fed's tightening cycle was entering the end phase. Today's PPI report has offered further succor to the notion that the Fed will actually be in a position to cut rates if, as we fear, the US enters recession in 2023," analysts at ING commented.

Upward pressure on US producer prices eased last month, figures from the Bureau of Labor Statistics showed.

The producer price index for final demand rose by 0.2% in October from September, the same monthly rise as seen in September. In August, PPI had been flat on the month before.

On an annual basis, PPI inflation was 8.0% in October, slowing from 8.4% in September. Annual producer price inflation has slowed each month since June when it stood at 11.2%. The recent peak was 11.7% in March.

The reading followed a consumer price index reading, similarly cheered by stock market traders.

On Thursday last week, the Bureau of Labor Statistics said the US consumer price index rose 7.7% in October against the prior year, slowing from the 8.2% rise recorded in September. Market consensus had expected inflation to cool by less, to 8.0%.

ING added: "Today's PPI report has given us confidence that inflation can fall more quickly than the market had been expecting. In turn, this will give the Federal Reserve the flexibility to respond with stimulus should a 2023 recession materialise, as we fear."

Equity markets have been pummelled by inflation worries, and also the cure to rampant price pressures, central bank monetary policy tightening.

Fed Vice Chair Lael Brainard said on Monday it may be "appropriate soon" for the US central bank to slow the pace of interest rate increases.

Analysts at Oxford Economics commented: "Though today's reading and last week's CPI report show prices are heading in the right direction, the Fed is still on pace to raise rates another 50bps in December, with a smaller increase possible in February, as it seeks to bring down inflation markedly."

By Eric Cunha; [email protected]

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