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Surprise drop in PPI miss suggests lack of US inflation


  • PPI M/M: -0.1% vs 0.2% exp and 0.3% prior
  • Core PPI M/M: -0.1% vs 0.2% and 0.3% prior
  • USD dips lower and Gold moves back close to recent highs at 1325

We earlier noted that a pick up in the inflation readings from the US were possibly the last line of defense for the beleaguered US dollar and the early indications aren’t good. Tomorrow’s CPI reading typically garners the more attention but this afternoon’s less widely viewed PPI has flashed a warning sign. 

An unexpected M/M decline of 0.1% was something of a shock against a prior reading of +0.4% and marks the first drop since last August’s release. There were only 2 deflationary prints in all of 2017 releases and today’s data relating to December will do little to dispel the notion that a lack of price pressure in the US could cause the Fed to adopt a slower pace of tightening.   

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 The recent drop in PPI suggests that price pressures in the US remain stubbornly low. Source: XTB Macrobond

Traders often view the core reading (stripping out food and energy) as a more true reflection of underlying inflation and today’s data on this was equally bleak. A core PPI M/M print of -0.1% was the same as the headline reading an against a consensus forecast for a 0.2% rise and a prior reading of 0.3% it comes as another disappointment for USD bulls. 

After the strong run higher seen at the end of 2017, Gold appears to have entered a period of consolidation so far this year. Price has been ranging from around 1305.75 to 1327.85 with the market seemingly pausing after the strong move higher following the December Fed meeting. 

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 Gold has traded in a range of around $20 for much of the year from 1305-1327. Will a break of this range lead to the next prolonged move? Source: xStation

Gold has moved to trade close to its highest level of the day following the release while the US dollar has fallen back. Yesterday saw Gold hit its highest level since September following the reports regarding China halting its purchases of US treasuries and the market is once more looking to build on impressive recent gains.  

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 Gold hit a 3-month high of 1327 yesterday and the market has risen following the release of this afternoon’s PPI data. Source: xStation



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