The Latest Inflation Numbers | ETF Trends

Several key economic indicators come out every week to help provide insight into the overall health of the U.S. economy, including the state of inflation. Policymakers and advisors closely monitor these indicators to understand the direction of interest rates, as the data can significantly impact business decisions and financial markets. In the week ending on May 11, the SPDR S&P 500 ETF Trust (SPY) rose 1.73% while the Invesco S&P 500® Equal Weight ETF (RSP) was up 0.60%. In this article, we take a deeper look at three of the most important economic releases from the past week: consumer price index, producer price index, and Michigan consumer sentiment. 

Consumer Price Index (CPI) 

April’s latest inflation data shows that inflation is continuing to cool down, with the consumer price index (CPI) rising by 4.9% year-over-year, slightly lower than the expected 5.0% and down from March’s 5.0% increase. Core CPI (excluding food and energy) prices met expectations, showing a 5.5% increase from last year. This represents a slightly slower pace than last month’s 5.6% increase. Both headline and core prices increased 0.4% from March, as expected. April marks the tenth consecutive month that inflation has eased, with CPI at its lowest level since April 2021. This suggests that the Fed’s rate hikes are helping to curb inflation. However, the latest CPI data remains substantially higher than the Fed’s 2% target rate.  

Producer Price Index (PPI) 

The producer price index (PPI) for April offered further evidence that inflationary pressures are subsiding. In April, headline PPI showed a 0.2% monthly increase in wholesale prices after last month’s unexpected 0.4% decline. On an annual basis, prices rose 2.3%. This represents the lowest 12-month increase since January 2021 and the tenth consecutive month that headline PPI has slowed down. Core PPI (excluding food and energy) showed a 0.2% monthly increase, up from March’s unchanged prices. Additionally, core prices increased 3.2% compared to April 2022. That marks the smallest annual increase since April 2021 and the thirteenth consecutive month that core PPI has slowed. Many consider PPI a leading indicator of consumer inflation since producers pass along their price shifts to the consumer level. The latest PPI numbers show that wholesale inflation is continuing to cool, providing hope that consumer inflation will follow suit. 

Michigan Consumer Sentiment 

The preliminary report for the Michigan Consumer Sentiment Index showed that consumer sentiment plummeted for the first half of the month. The May preliminary report came in at 57.7. This is down 9.1% from April’s final reading and well below the forecast of 63.0. This is the largest monthly drop the index has seen in almost a year. That drop puts the index at its lowest reading in the last six months. The index is a monthly survey measuring consumers’ opinions with regards to the economy, personal finances, business conditions, and buying conditions.

In the latest report, consumers showed decreased confidence levels for current and future economic conditions. Their main concerns revolved around the potential for a recession, the debt ceiling crisis, and inflation. Consumer spending makes up 70% of the economy. Therefore, if consumers begin to grow weary and pull back on spending, it could push the economy into a recession. The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer sentiment. 

This week, we will be closely monitoring the latest housing market news to see if it continues to cool down amidst volatile interest rates and lack of existing inventory. On Wednesday and Thursday, the latest data on building permits, housing starts, and existing home sales for April will be released. Building permits are forecasted to come in slightly higher than March to a seasonally adjusted annual rate of 1.440 million. Housing starts are expected to fall for a second straight month to a seasonally adjusted annual rate of 1.400 million. That’s down from 1.420 million in March. Finally, existing home sales are also projected to fall for a second straight month to a seasonally adjusted annual rate of 4.30 million units, down from 4.44 million in March.

These housing market indicators will have an impact on homebuilders and residential real estate ETFs such as the iShares U.S. Home Construction ETF (ITB), the SPDR S&P Homebuilders ETF (XHB), and the iShares Residential and Multisector Real Estate ETF (REZ) 

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