PPI Follows CPI’s Hot Footsteps

Yields plummet despite another hot inflation print. Markets generally shrugged off January’s producer inflation print, which was higher than expected across all but one measure but showed price declines across most categories that feed into PCE. The short end of the yield curve dropped 5 bps in the immediate aftermath of the data release, and yields continued to fall throughout the day on reports that Trump’s reciprocal tariffs could occur over a prolonged timeframe. The 2-year yield ultimately closed 5 bps lower while the move was more pronounced at the long end of the curve, where yields fell 9-10 bps.

PPI exceeds estimates across most measures, but PCE inputs cool. Wholesale prices rose across most measurements in January, per today’s PPI release, and December price increases were revised sharply higher. Headline PPI inflation was driven by a 1.1% increase in food prices and a 1.7% increase in energy prices, while core inflation persisted due to price increases across goods and services categories. Encouragingly, economists at Morgan Stanley, Goldman Sachs and Capital Economics, among others, reportedly lowered their core PCE estimates following the results.

UK avoids a recession with GDP at 0.1% in Q4. Britain’s QoQ GDP unexpectedly rose in Q4 2024 to 0.1% from 0.0% in Q3, exceeding estimates for a -0.1% contraction. The improvement comes after the Bank of England cut rates last week, largely driven by concerns about falling economic growth forecasts. The BOE trimmed their 2025 economic growth forecasts to just 0.75% versus their previous forecast of 1.5%. The BOE is largely expected to pause monetary easing at next month’s policy meeting before resuming rate cuts in May.