Inflation is trending up

The PPI report came in hot this morning, and the market is paying attention. August Producer Price Index: 5.4% YoY, above the 5.3% forecast. Zoom out and the trend is the story. PPI cooled from double-digit highs in 2021-2022 down to near-zero, then started climbing again through the summer, 2.5% in May, 4.9% in July, now 5.4% in August. That's a clear re-acceleration, not noise.Timing matters here. This print lands the day before CPI, with the Fed's two-day policy meeting starting next Tuesday. A hotter-than-expected PPI print feeds directly into rate expectations, and the market moved fast. The 10-year Treasury yield jumped to around 4.90%, its highest level since November 2023. The dollar index (DXY) strengthened, climbing back toward ~99+ as rate-hike odds firmed up, and precious metals have weakened as the data suggest the Fed could find reasons to hike, even though it will be difficult to justify in the context of debt and the deficit and with the White House already asking for a cut. The common thread is related to rising energy prices (crude topping $100/barrel) which are feeding straight into producer costs, and the market is reading this as evidence the Fed may need to stay hawkish. The CPI tomorrow will be key, and it doesn’t look good for bonds.

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