Will weak commodity prices cool hot producer prices?

The US dollar jumped to a fresh 20-year high as investors bought into the greenback in a flight to safety. Consumer inflation is accelerating faster than producer inflation, as households take the brunt of these pricing pressures.

The consumer price index (CPI) rose 1.4 per cent in June while producer prices rose 1.1 per cent. The annual headline figures for consumer prices came in at 9.1 per cent in June while producer prices landed at 11.3 per cent, according to the US Bureau of Labor Statistics.

However, producers are set to see some reprieve as commodity prices are coming down. Recession fears are putting pressure on commodities ranging from metals to oil, which has stabilised around US$96 a barrel.

With any changes in price, there is a lag, and it could take months before inflation stabilises at the household level. Retail gas and food costs could cool, while prices for other services such as rents could remain persistently high.

Following the report, investors’ bets grew that the US Federal Reserve will hike interest rates by 100 basis points this month. The short end of the treasuries yield curve, the 2-year, extended losses given that 100 basis points rate hike was pared back.

Global equity markets have been through a whirlwind amid persistent uncertainties. Rising inflation concerns coupled with interest rate hikes has increased market volatility – the theme of 2022. With worries over an impending recession and growing geopolitical tensions, the inflation story will continue to be front of mind as earnings season comes underway.