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Concerns of a stock market crash are growing ahead of the release of the Producer Price Index (PPI) inflation report this Thursday, June 13. The PPI release will come on the heels of the Consumer Price Index (CPI) report on Wednesday, which will be released on the same day as the Federal Reserve’s June interest rate decision.
What should we expect this time around?
Well, PPI is usually second in importance to CPI, but this time around, it too is expected to come under intense scrutiny as economists and investors look for evidence of falling prices.
As you know, wholesale prices rose 0.5% in April, the biggest increase in a year and beating the 2.2% forecast for annual producer price inflation. Core PPI, which excludes food and energy costs, also rose 0.5%, more than double the forecast of a 0.2% increase.
Wholesale prices tend to be seen as a future indicator of consumer inflation. Indeed, when production costs rise, producers frequently raise the prices of their goods, effectively passing on the increased costs to customers and reflecting them in the Consumer Price Index (CPI) or Personal Consumption Expenditures (PCE) consumer inflation measures.
As such, April’s PPI was a bit disappointing, especially considering the CPI performed quite well, rising 0.3% in April, snapping a 0.4% monthly inflation streak.
That being said, all eyes are on Tuesday and Wednesday this week.
What does PPI mean for a potential stock market crash?
Inflation is expected to be a central topic at the Federal Reserve’s policy meeting this Wednesday. Indeed, with a rate cut unlikely this time around, investors will be paying more attention to Fed Chairman Jerome Powell’s stance on the current price situation.
Many economists expect a rate cut in September, but Powell may confirm or deny that this week.
In that respect, the PPI will provide some much-needed insight, following an expectedly mixed CPI. The CPI is forecast to rise by just 0.08% in April, driven by a sharp drop in gasoline and oil prices. In fact, the core CPI is expected to rise by 0.3% month-on-month, bringing the annual inflation rate to 3.5%.
Overall, we expect markets to react (possibly dramatically) to the outcome of the Fed’s policy meeting and related inflation measures.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s Publishing Guidelines..
