The U.S. Producer Price Index (PPI) in July rose 0.9% month-on-month well above the 0.2% expectation and 3.3% year-on-year from the 2.5% forecast. This was a high beat from June’s zero monthly rise and 2.4% year-on-year increase, which signals continued wholesale-level inflation pressures.
Core PPI, which excludes food and energy, also rose 0.9% in July, well above the 0.2% forecast.
The subsequent forecast higher inflation readings also fueled speculations that the Federal Reserve would postpone interest rate reductions. Before the announcement, markets were heavily anticipating a close-to-bank rate cut in September, but the probability dropped from 100% to 96% according to the CME FedWatch tool.
Cryptocurrencies acted quickly. Bitcoin dropped from an overnight peak of more than $124,000 to less than $119,000, and Ethereum dropped nearly 4% to $4,550. Solana and XRP dropped sharply as well.
The selloff illustrates the extent to which crypto markets now track U.S. macroeconomic indicators, as investors moved swiftly on signals that could influence borrowing costs and liquidity.
Labor market data was no comfort. New weekly jobless claims for August 9 tallied at 224,000, a bit below forecast, and ongoing claims were at 1.95 million. The still-consolidating labor market, coupled with strong inflation readings, makes the argument for the Fed to keep rates higher for longer even more compelling.
The U.S. equity index futures fell 0.5%, the dollar appreciated, and the 10-year Treasury yield rose by five basis points to 4.25%, showing a move to safety assets.
The PPI surge reminds that inflation pressures are still recalcitrant and complicate the policy path of the Fed.
Also Read: Bitcoin, Ethereum Rally as Softer US Inflation Fuels Rate Cut Bets
