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Yesterday morning, the Bureau of Labor Statistics reported that wholesale prices jumped 1.4% in a single month — the biggest one-month spike since March 2022. On a year-over-year basis, the Producer Price Index hit 6%. Gasoline alone was up 15.6% in April. Diesel surged. Shipping costs surged. And buried in the fine print: trade services margins — the cut that middlemen take between the factory and your shopping cart — jumped 2.7%. That means the markup is getting bigger, not just the underlying cost.
Now look at the stock market. On the same day that PPI came in almost triple the forecast, the S&P 500 closed at 7,444. A record. The Nasdaq hit its third all-time high this week. Nvidia is on a six-day winning streak. Cisco popped 17% on earnings. If you looked only at your brokerage account, you’d think the economy was throwing a party. If you looked only at the inflation data, you’d think someone should be calling the fire department.
Here’s what most people get wrong about the PPI. They treat it like background data — a number for economists. It’s not. It’s a leading indicator. It tells you what’s coming to consumer prices in 60 to 90 days. When wholesale costs rise this fast, businesses either eat the margin or pass it along. They almost always pass it along. Tuesday’s CPI already showed consumer inflation at 3.8% — the highest since May 2023. Real wages fell 0.5% in a single month. And yesterday, Boston Fed President Susan Collins said the Fed may need to raise rates — not cut them — if this keeps up. That’s the first time a Fed official has used the word “hike” in over a year.
And here’s the part that really gets me. The last time the PPI was at 6% and the S&P 500 was at record highs was early 2022. Six months later, the market was down 24%. I’m not saying it happens the same way twice. Markets don’t replay on a schedule. But when stocks are priced for perfection and inflation is running at triple the Fed’s target... something has to give. It always does.
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