Summary:

• US PPI Y/Y: +3.1% vs 2.8% expected
• Second inflation beat from the US in 2 days; Fed decision 7pm (BST)
• USD slightly lower on the day; Silver at 7-week high 

There are growing signs that US inflation is running hot, with the release of the second above forecast inflation metric in the last two days. Following on from Tuesday’s CPI release – which was the highest in 6 years – we’ve just seen the PPI number also increase to its highest since 2012. In Y/Y terms today’s reading came in at 3.1% vs 2.8% expected, with the core reading Y/Y being 2.4% vs 2.3% expected.

 

Headline PPI rose once more and you have to go back 6 years to find a higher reading. Source: XTB Macrobond

One of the largest contributory factors to the rise was a 4.6% M/M jump in energy costs and this goes some way to explaining the larger increase in the headline compared to the core which strips out food and energy. In terms of market reaction, there’s been a failure for the US dollar to rally on this, with the buck actually dropping back in the half hour or so since the release. 

 The USD is dropping against the majority of its peers on the day, although the losses are relatively small. Source: xStation

The market is likely in wait-and-see mode ahead of the Fed meeting this evening (preview here) with the USD remaining rangebound against most of its peers, although Silver is threatening once more to make a break higher. The precious metal can be highly sensitive to US economic events and has just hit its highest level since late-April, not far from the 17 handle. The market appears to be attempting to make a break higher once more and a daily close above 16.91 would further support a breakout. Any dovish tilts from the Fed this evening could provide more fuel to fire and may lead to a larger move to the upside. 

 Silver has reached its highest level since April and a dovish Fed later could lead to a strong move higher. Source: xStation