Why did January PPI rise and contribute to the recent bump in inflation fears?

January PPI bounced along with charts that would have indicated as much

You can click the image to get the original article if you’d like. It’s more in the recent string of inflation mini-hysteria (or echo hysteria) as producer prices rose in January (joining the bounce in January CPI and the boom in January Payrolls.

Click image for article

So did the rise come out of nowhere? Nope. It’s right here in this picture of materials and metals that producers use, which of course contributes to their costs, which they try to pass on. Hence, a bump in the PPI. Let’s put aside for a moment that said producers (e.g. manufacturers) have been seeing decelerating business as a trend.

But the Q4-Q1 sentiment rally, AKA bear market rally (BMR) was expected to be more persistent than any BMR before it on this bear cycle (it has), was supported by “Fed hawk relief” after being kicked off by an extreme over-bearish sentiment backdrop (dangerous the other way now) and the election cycle pattern that followed the mid-terms.

So here is a look at some contributing areas to manufacturers’ costs (ETFs). Hmmm, what role do you suppose the elevated pricing within the green bar (January) might have contributed to PPI?

base metals, copper price, metals and mining and materials charts

The thing is, a broad rally (such as it is) like we are having in broad markets is going to bring about the seeds of its own antagonism from the hawking Fed. This dynamic contributes to what I mentioned yesterday, that the process is not linear. Nothing goes straight up or down, and that includes the waning of inflation if that is still the trend, which I don’t yet see clear reason to doubt yet.

If these tremors of late become a trend then so be it. But the Fed is working toward a deflationary resolution. The market is forcing their hand.

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