Treasury Yields Edge Higher After US Producer Inflation Exceeds Expectations

Treasury yields are moving higher on Thursday as investors digested another hot U.S. inflation report showing the economy is holding up amid the Federal Reserve’s rate hikes.

The higher yields are helping to make the U.S. Dollar a more attractive asset, while putting some pressure on dollar-denominated commodities like crude oil and gold. Stock index futures also fell in reaction to the surprisingly strong data.

Wholesale Prices Rise More than Expected

The U.S. producer price index, an inflation indicator that tracks wholesale prices, rose 0.7% in January, topping a Dow Jones consensus forecast for a 0.4% increase.

Excluding food and energy, core PPI increased 0.5%, compared to expectations for a 0.3% increase. Core excluding trade services increased 0.6% against the 0.2% estimate.

In the 12 months through January, the PPI increased 6.0% after advancing 6.5% in December. Economists had forecast the PPI climbing 0.4% and rising 5.4% year-on-year.

Philly Fed Index Extends Slump in February

Manufacturing activity in the region continued to decline, according to the firms responding to the February Manufacturing Business Outlook Survey.

The general activity index declined further, the new orders index remained negative, and the shipments index remained positive by low.

The employment index declined but remained positive, and the price indexes continued to suggest overall increases but were in line with long-run averages.

Most of the survey’s future indications were positive but low, suggesting tempered expectations for growth over the next six months.

Current Indicators Remain Weak

The diffusion index for current activity fell from a reading of -8.9 last month to -23.3 this month, its sixth consecutive negative reading and lowest reading since May 2020.