The December Producer Price Index (PPI) report saw final demand increase 0.2% in December when compared to the month prior. Extending that to a year-over-year basis, final demand increased 3.3% during the month. That’s significant as experts predicted inflation would increase final demand by 3.4% in December. Excluding volatile energy and food brings final demand to 3.5% compared to estimates of 3.8%.
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Breaking that data down, final demand goods increased by 0.6% in December. Energy was a large contributor to this with a 3.5% increase, largely fueled by a 9.7% jump in gas. On the other hand, food was down 0.1% while final demand goods minus food and energy was unchanged.
Final demand services was another surprise in December as there was no increase. Passenger transportation prices increased by 7.2% but were largely offset by traveler accommodation services decreasing by 6.9%. Other drops also kept final demand services from rising during the month.
What This Means for the Economy
The surprising December PPI report shows inflation remains steady. That’s good news for the economy, but might not have the best effect on the stock market. Steady inflation means the Federal Reserve will be less worried about cutting interest rates. That’s something the market has been hoping for after interest rates were increased to combat inflation.
Experts only predict a 3% chance an interest rate cut will be announced at the January Fed meeting. Some predict the earliest an interest rate cut will be announced is June. Even then, predictions only put that possibility at 50%.
Stocks to Bet on When Interest Rates Remain High
Financial stocks are among those that benefit from increased interest rates. As such, traders might consider picking up shares in financial companies to profit from a likely lack of interest rate cuts this year. Retail stocks also perform well when interest rates are high. One sector that doesn’t benefit from high interest rates is tech stocks. Even so, investors will note that artificial intelligence (AI) stocks are set to increase this year despite high interest rates. A few stocks worth comparing are listed below.
