Is PPI As Important For The USD Now As It Was Before? - Forex News by FX Leaders

Is PPI As Important For The USD Now As It Was Before?

Posted Thursday, July 13, 2017 by
Skerdian Meta • 2 min read

Yesterday we went through the first part of Yellen´s testimonial and today the second part starts at 3 pm GMT time. The speech is likely to kick the buck 100 pips or more in either direction.

But before that, the US producer inflation (PPI) is set to be released and that might mess things up for the USD.

Producer inflation takes into account prices that manufacturers have to pay for the material/parts they use in production. A higher PPI is supposed to translate into higher prices for finished goods, which means higher CPI (consumer price index), which is the real inflation indicator.

Actually, core CPI, which strips down inflation on energy, building materials, and food, can be pretty volatile. It is prone to month-on-month orders, so it´s a better display of real inflation.

Regardless, the PPI has been losing some of its credibility recently. A globalized world means that even if suppliers close to you are hiking prices due to higher demand, there will always be other suppliers at the other side of the globe who will fill their place with lower prices.

The same goes for labor; even if an economy is at full employment (like the US right now), there will always be another billion or so people looking for work somewhere else. They'll be willing to make the move and come/go where the demand for labor and wages are higher.

This is what´s keeping the wages subdued in the US, UK, and EU, which hurts inflation and of course personal income.

On the other hand, weak producer inflation does affect CPI.

So, my take is that a good PPI reading today won´t turn things around for the USD. This is because a good PPI translating into higher CPI is a long shot. On the other hand, a bad number will definitely send the Buck diving again after yesterday´s decline. If PPI can´t keep up, CPI will be in a worse position.

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About the author

Skerdian Meta // Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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