Why it’s important?

The ranges of estimates are
important in terms of market reaction because when the actual data deviates from the
expectations, it creates a surprise effect. Another
important input in market’s reaction is the distribution of forecasts.

In fact, although we can have a range of
estimates, most forecasts might be clustered on the upper bound of the
range, so even if the data comes out inside the range of estimates but
on the lower bound of the range, it can still create a surprise effect.

Distribution of forecasts for PPI

PPI Y/Y

• 3.6% (5%)
• 3.5% (5%)
• 3.4% (14%)
• 3.3% (36%) – consensus
• 3.2% (23%)
• 3.1% (14%)
• 2.9% (5%)

PPI M/M

• 0.4% (14%)
• 0.3% (50%) – consensus
• 0.2% (28%)
• 0.1% (4%)
• -0.1% (4%)

Core PPI Y/Y

• 3.7% (6%)
• 3.6% (41%)
• 3.5% (41%) – consensus
• 3.4% (6%)
• 3.3% (6%)

Core PPI M/M

• 0.4% (5%)
• 0.3% (76%) – consensus
• 0.2% (17%)
• 0.0% (2%)

We
can ignore the headline PPI as the market will focus on the Core
figures. We can notice that there are wide ranges in estimates, although the bulk of the consensus is on 3.5/3.6% for the Y/Y figure and 0.3% for the M/M measure. Judging by yesterday’s market reaction to the US CPI, the focus will be particularly on the details that feed into the Core PCE. Last month, the PPI saved the day as the components that feed into the PCE were all soft and lowered the estimates materially.

Here’s a reminder of what Fed Chair Powell said in February: “We don’t get
excited about one or two good readings, and we don’t get excited about
one or two bad readings. We target PCE
inflation because we think it’s simply a better measure of inflation.
And so you need to know the translation from CPI to PCE, and we get more
data on that. Tomorrow we’ll get the producer price index. So, I think
it’s always wise. And the people who follow us closely know this, that
we’ll know actually what the PCE readings are late tomorrow (after the PPI release)“.