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Analysts at Nomura explain that the August PPI report of US suggests some easing of inflationary pressure as the headline PPI reading declined 0.1% m-o-m in August, below expectations (Consensus: +0.2%).

Key Quotes

“Most of the weakness was attributable to food prices (-0.6% m-o-m) and trade service prices (-0.9%). Excluding volatile components (e.g., food, energy and trade services), “core” PPI rose modestly by 0.1% m-o-m in August, following solid gains of 0.3% in June and July.”

“For implications on CPI inflation, a 0.9% m-o-m decline in PPI’s finished consumer foods prices would likely be negative to CPI’s food-at-home prices for August.”

“We continue to expect core CPI inflation to increase solidly by 0.3% (0.256%) m-o-m in August, following a 0.243% in July. Our forecast would keep the 12-month change at 2.4% (2.367%) y-o-y in August.”

“We estimate the aggregate contribution from relevant PP components is +0.03pp (3bp) to the m-o-m core PCE inflation in August, up from +0.01pp (1bp) in the previous month.”

GDP tracking update: Details of the PPI report for August, which we use to deflate various components of GDP, imply stronger real GDP growth in Q3. The PPI for intermediary goods was weaker than expected, suggesting stronger contribution from real changes in private inventories in Q3. Moreover, the PPI for capital equipment was also weaker than expected, suggesting stronger contribution from real business equipment investment during the quarter. While the PPI for brokers’ commissions and fees were stronger than our expectation implying less real residential investment, the impact on topline GDP growth was small. Altogether, we raised our Q3 real GDP tracking estimate by 0.3pp to 3.3% q-o-q saar.”

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