The Consumer Price Index (CPI) is showing higher than expected inflation, and the Producer Price Index (PPI) is showing lower than expected inflation. The two are in conflict with each other; however, the Consumer Price Index is still the far greater indicator for inflation as it directly impacts the cost of living for everyone, not just production assets.

With the upcoming CPI and PPI reports this week, last week still had a number of important data points to consider. First, the non-farm payroll data, helping reveal the situation of pay versus inflation data giving an overall description of the state of the economy in the future. Among that, the manufacturing data has shown to be contracting the past year, with the first signs of relief this month. Lastly, trade data has shown that the trade deficit has grown bigger than expected with Q1 coming to completion.

As expected from the prior inflation reports with CPI and PPI, the PCE index had also shown the same corollary among its data points, reporting a higher than expected increase for the month of February across all products.

In addition, the Chicago PMI had shown a declining trend of activity among businesses for the 6th week in a row. All this points to that there might be a case for the Federal Reserve to continue holding rates in the next rate decision coming up in the summer of 2024. There has been much speculation that the Federal Reserve will begin cutting rates at this time; however this is evidence of the contrary.

While it’s not a set deal, the Federal Reserve does appear to be on track for a June rate cut, and following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5% until then.

Additionally, the government has also avoided another shut down as a series of rushed bills had approved spending for the government by another 1.2 trillion dollars. This is good news for lending markets as the debt ceiling has previously tied up rate decisions in the past.

Last week’s inflation data came in at a higher rate than expected, with Price Producer Index (PPI) numbers showing more than double the expected inflation gain.

With both CPI and PPI being over the target, the steadfast certainty that the Federal Reserve will cut rates has now taken a step back, resulting in more tamed expectations for the near future.

With a mixed response from lending partners, this may end up rapidly changing in the next round of discussions with the Federal Reserve’s Chairman Jerome Powell this coming week, as well as a final rate decision.