Inflation Shows Signs of Life

In a report this morning, the BLS announced that, in July, the Producer Price Index rose by 0.6% against an expectation of just 0.3%. On a year-over-year basis, the twelve-month headline rate moved up to minus 0.4% as analysts expected a more negative minus 0.7%. At the core level, without food and energy, July’s gain was an outsized 0.5% versus a forecast of just 0.1%. Year-over-year, the core rate moved to 0.3% against an anticipated move to zero after June’s reading of 0.1%. The unexpected price-level gains may be a sign of a more energetic recovery than some currently perceive. Or, it could be signs of a supply chain still in disarray.

Market participants seem to be going with the former explanation as equity futures are up over 300 points (DJIA) and a Treasury sell-off has pushed the Ten-Year’s yield up to around 62 basis points. More disquieting news came earlier today with a report from the National Federation of Independent Businesses indicating that its Small Business Optimism Index fell last month to 98.8 from 100.6 when it was only expected to dip to 100.5. This decline in business sentiment mirrors recent declines in consumer sentiment.

Also in the news was a report out of Russia that they’ve registered a vaccine for COVID-19. The rest of the world appears a bit skeptical, and more information is sure to follow. President Trump also caught the attention of many investors with the news that he is considering a cut to the tax rate for capital gains. Gold, at around $1,970 has slipped almost $60 while crude oil has moved up about $1 to $42.80. The Treasury is selling three-year notes today.