PPI Report Preview: Markets Turn Focus to Wholesale Inflation Amid Tariff Concerns

With inflation remaining a dominant market theme, all eyes will turn to the Producer Price Index (PPI) report, set for release tomorrow at 8:30 AM ET. Investors have already navigated one major hurdle this week as February’s CPI data came in lighter than expected, offering a temporary boost to markets before stocks reversed gains in a familiar “sell-into-strength” reaction. As equities attempt to stabilize and regain ground this afternoon, attention now shifts to ppi, which may carry more weight than CPI this time around—particularly as investors look for any early signs of inflationary pressures from new tariffs.

Why PPI Matters More This Time

While the Consumer Price Index (CPI) measures inflation at the consumer level, PPI tracks the cost of goods and services at the producer level—offering insight into whether businesses are absorbing higher costs or passing them along to consumers. Given that tariffs often hit the supply chain first, any price increases in PPI could foreshadow future CPI and PCE inflation trends.

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, incorporates both CPI and PPI data. When both consumer and producer prices rise together, it increases the likelihood of stickier inflation, which could influence future Fed rate decisions. Conversely, if PPI data comes in cooler, it may reinforce the idea that businesses are absorbing cost pressures rather than passing them down, which could support the Fed’s path toward easing later this year.

What Economists Expect for February PPI

Consensus estimates for tomorrow’s PPI report are as follows:

- Headline PPI (MoM): +0.3% (previous: +0.4%)

- Headline PPI (YoY): +3.3% (previous: +3.5%)

- Core PPI (MoM, ex-food & energy): +0.3% (previous: +0.3%)

- Core PPI (YoY, ex-food & energy): +3.6% (previous: +3.6%)

- PPI Ex-Food, Energy, and Trade (MoM): +0.2% (previous: +0.3%)

- PPI Ex-Food, Energy, and Trade (YoY): +3.4% (previous: +3.4%)

These projections suggest a slight moderation in price pressures at the wholesale level compared to the prior month. However, given the impact of seasonal adjustments and potential supply chain disruptions, surprises remain possible.

A Look Back: What the January PPI Report Told Us

Last month’s PPI report showed producer prices rising at a hotter-than-expected pace:

- Headline PPI came in at +0.4% MoM, above expectations of +0.3%, while YoY inflation was 3.5%, exceeding the forecasted 3.3%.

- Core PPI MoM remained steady at +0.3%, signaling that underlying price pressures had not yet cooled.

- The PPI ex-food, energy, and trade category showed a slight upside surprise at +0.3% MoM (vs. +0.2% consensus), indicating inflationary pressures were still broad-based.

While these numbers initially sparked concerns, today's CPI’s cooler-than-expected print helped ease inflation fears, shifting market focus toward whether PPI’s hotter print was a one-off or part of a broader trend.

Market Reaction and Fed Implications

Tomorrow’s PPI print will be closely watched by both traders and policymakers, as it will shape expectations for the upcoming PCE inflation report, the Fed’s preferred metric. If PPI surprises to the upside, it could reignite concerns that tariff-driven inflationary pressures are beginning to work their way through the economy—potentially forcing the Fed to remain cautious on rate cuts.

On the other hand, a softer-than-expected PPI print could help reinforce the disinflation narrative, providing some relief to markets and supporting expectations for a more dovish Fed stance.

What to Watch in the Report

With new tariffs recently announced, investors will be watching for early signs of price increases in trade-sensitive categories. If import costs start creeping into PPI, it could be a warning sign that inflationary pressures are mounting.

Bottom Line: A Key Test for Inflation Sentiment

With inflationary fears still lingering, tomorrow’s PPI report will be a major test for market sentiment. If the data comes in hotter than expected, it could undermine the optimism from the CPI report and reignite concerns about persistent inflation. However, a cooler print could provide markets with further reassurance that price pressures are easing, keeping the Fed on track for potential rate cuts later in the year.

For now, traders will be watching closely, knowing that PPI has the potential to be the deciding factor in whether inflation expectations continue to ease—or take a turn for the worse.