## Surprise Drop in Wholesale Prices Sends Shockwaves Through Market
I couldn’t believe it when the news broke. The wholesale prices unexpectedly declined in December, sending a positive signal for inflation, according to a report from the Labor Department. It was definitely unexpected, but it provided a glimmer of hope for the market.
### The Numbers and Reactions
The producer price index fell 0.1% for the month, when economists were actually expecting a gain of 0.1%. This sent shockwaves through the market — especially after the index had surged 6.4% in 2022. Even excluding food and energy, core PPI was flat and failed to meet the estimate for an increase. However, markets reacted positively to the news, with stock futures shaving losses and Treasury yields mostly lower.
### What Does It Mean?
The PPI release prompted speculation about the Federal Reserve’s next move. Traders started pricing in about a 70% probability that the first quarter percentage point cut will come at the March 19-20 meeting of the Federal Open Market Committee, according to the CME Group’s FedWatch tracker. The surprising drop in wholesale prices made markets more convinced that waning inflation signs will push the Fed to cut interest rates starting in March — even with inflation above target.
### Market Uncertainty
It seemed like the market might be in for a turbulent ride. Even though the data showed a decline in wholesale prices, various Fed officials had made statements that seemed to counter the market’s aggressive view. To add to the uncertainty, JPMorgan Chase CEO Jamie Dimon warned that heavy government deficit spending, among other factors, could cause inflation to be stickier and rates to be higher than the market expects.
Overall, the surprise drop in wholesale prices has set the stage for a fascinating period ahead. It’s certainly a situation to monitor closely as the market dynamics continue to evolve.