The Producer Price Index (PPI) Report for January is out and it provides investors with insight into inflation’s effect on the U.S. economy. Final demand increased by 0.4% in January compared to a 0.5% increase in December, coming in above experts’ estimate of 0.3%. This also saw final demand rise 3.5% over the past 12 months.
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Turning to final demand minus volatile food, energy, and trade services shows a 0.3% increase month-to-month from a 0.4% increase in December, matching expectations. This increased by 3.4% year-over-year.
A huge source of the PPI increase comes from final demand goods, representing roughly one-third of January’s increase. Fueling this was diesel jumping 10.4% and rising prices for chicken eggs. Chicken egg prices are increasing as farmers kill off flocks to hamper the spread of the avian flu.
What This Means for the Stock Market
The latest PPI report has investors even more certain interest rate cuts are off the table for months. Some estimates claim the Federal Reserve might not consider another rate cut until October. This comes after yesterday’s Consumer Price Index (CPI) report revealed inflation increased more than expected.
While the PPI and CPI provide investors with inflation information, the Fed mainly relies on the Personal Consumption Expenditures Index (PCE) when considering interest rate cuts. The January PCE report will be released on Feb. 28, 2025.
What Traders Should Do During High Inflation
Even with inflation remaining sticky, investors can still look to several sectors for profits. Bank stocks often benefit from increased interest rates and department store stocks offer strong investment opportunities during inflation. Areas that traders will want to avoid are growth stocks and those focused on luxuries.
Turning to retail stocks, investors have quite a few options worth considering. Walmart (WMT) remains a strong pick as it leads the sector and TJX Companies (TJX) is uniquely positioned to weather inflation better than its rivals. They both sport Strong Buy ratings with WMT offering a potential 1.81% upside and TJX having a possible 10.18% upside.
