M/M PPI +0.5% vs.+ 0.2% Bloomberg consensus; m/m core PPI +0.7% vs. +0.2% consensus. Here’s instantaneous (per Eeckhout, 2023) PPI and PCE vs q/q CPI:
Figure 1: Instantaneous inflation (T=12,a=4) for PPI (green), PCE deflator (brown), q/q annualized CPI (blue), all in decimal form %. Calculations per Eeckhout (2023).Source: BLS, BEA, and author’s calculations.
I plot q/q for CPI because the missing October value prevents calculation of instantaneous CPI for the most recent observations. On the other hand, q/q inflation approximates ok for instantaneous for the CPI.
Figure 2: Instantaneous inflation (T=12,a=4) for core PPI (green), core PCE deflator (brown), q/q annualized core CPI (blue), all in decimal form %. Calculations per Eeckhout (2023).Source: BLS, BEA, and author’s calculations.
Cleveland Fed’s PCE deflator nowcast does not rely on the PPI. GS today predicts +0.37% m/m core PCE inflation in December, corresponding to an annualized rate of 2.98%, substantially over the target 2%. The Cleveland Fed’s core PCE nowcast is 0.24% m/m.
Looks like wholesalers boosted margins. In BLS terms, wholesalers provide a service when selling goods, so:
“The Bureau said over 40% of the increase in prices for final demand services was from a 4.5% rise in margins for machinery and equipment wholesaling.”
https://www.mdm.com/news/research/economic-trends/december-ppi-rises-sharply-as-machinery-wholesalers-expand-margins/
This is tariff passthrough on goods.
On a related topic, DXY rose 1% today, coincident with lower metals prices and the Warsh nomination. That’s despite a slight downward drift in expectations for the year-end funds rate and in Treasury rates; neither strong PPI nor Warsh news was enough to lift rates. Nominal Treasury rates fell more than TIPS break-evens – the drop in Treasury rates isn’t just an inflation-expectations thing. Not a very consistent message from market price movement.
This whole Bessent says “strong dollar”, felon-in-chief says a 4-year low for the dollar is dandy and also cut rates, just got even cloudier. Let’s hear how Warsh, seen as a hawk based on his own extensive statements, threads this needle.
Off topic – dueling headlines regarding the threat to bomb Iran:
“Saudis won’t let the US use its bases or airspace for an attack on Iran, senior Gulf official reveals”
https://www.foxnews.com/politics/saudis-wont-let-us-use-its-bases-airspace-attack-iran-says-senior-gulf-official
And:
“Scoop: Saudi defense minister says Trump not bombing Iran would embolden regime”
https://www.axios.com/2026/01/31/saudi-us-strike-iran-kbs-trump
So the Saudis won’t help the U.S.(and Israel) bomb Iran. That’s in keeping with recent public statements from the Saudi crown prince opposing attacks on Iran. Meanwhile, the Saudis are telling the U.S. behind closed doors that bombing Iran is necessary. What gives?
Two conflicting thoughts: One is that a “scoop” can turn out to be bull plop, something cooked up in a neocon propaganda lab. In that case, Saudi Arabia is actually opposed to bombing Iran, just like they say. The other is that Saudi Arabia’s leaders wants Iran bombed, but don’t want the Muslim-in-the-street to know they had anything to do with the bombing of Muslims.