US PPI Spurs Traders to Price Higher Odds of a September Fed Rate Hike

Market reaction to the broadly in-line PPI data can be explained by traders using the released component data to infer CPI. According to Sina Finance, a simple regression analysis of the monthly PPI and CPI data shows August CPI likely rose about 0.4% month over month, in line with market expectations but faster than the prior month. The revision to PPI data also increased the risk that the broader inflation figures could see a similar upward revision. Core monthly inflation remained relatively mild, but it offered little comfort to the market. Traders have now raised the probability of a September rate hike to above 70% and have fully priced in expectations for the first hike by October at the latest. The dollar was boosted as a result and still has room to rise further relative to interest-rate moves.