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By Scott McIntyre, CFA
Co-Head of Investment Management
HilltopSecurities Asset Management
Wholesale prices were surprisingly tame in March as the headline producer price index (PPI) rose just +0.5%, well below the +1.1% median forecast. Nearly the entire increase was driven by a +8.5% jump in final demand energy prices. Within the energy category, wholesale gasoline prices rose +15.7%. Final demand food prices were -0.3% lower last month, with significant declines noted in fruits and vegetables. When food and energy are excluded, core PPI rose just +0.1%, the smallest monthly increase since last August.
Note: “final demand” PPI measures changes in selling prices received by domestic producers.
On a year-over-year basis, headline PPI rose from +3.4% to +4.0%, a significant increase but well below the +4.6% median forecast. Core PPI held steady at +3.8%, under the +4.1% median forecast.
While prices for final demand goods (60% of the overall index) climbed +1.6% in March, prices for final demand services (40% of the overall index) were unchanged as trade margins fell while transportation and warehousing prices softened.
This morning’s report is somewhat of a relief, coming in significantly lower than expected with prior month revisions lowering producer price pressure even further. However, PPI data collection wrapped up on March 13, just two weeks into what was expected to be a limited engagement in Iran. Today happens to be the final day of data collection for April PPI …and obviously the conflict is ongoing. A full month of higher energy prices will be reflected in the next report, suggesting April PPI could be warmer still.
Ongoing inflationary pressure will depend on the evolving conflict in the Middle East and at this point, the Strait of Hormuz remains essentially closed, with just five vessels crossing yesterday and two today.
Bond yields are flat, while equities are higher in early trading. PPI has a historically weak correlation with CPI, but certain components feed into PCE. That being said, this report will have no impact on Fed monetary policy. The April FOMC meeting is in two weeks and Fed officials will remain firmly on hold, watching events in the Middle East along with the rest of us.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.