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U.S. Producer Prices Post First Drop in One-and-a-half Years

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  • U.S. Producer Prices Post First Drop in One-and-a-half Years

U.S. producer prices unexpectedly fell in August, recording their first drop in 1-1/2 years, as declines in the prices of food and a range of trade services offset an increase in the cost of energy products.

Despite the surprise weakness in producer prices reported by the Labor Department on Wednesday, overall inflation is steadily rising, driven by a tightening labor market and robust economy. The Federal Reserve is expected to raise interest rates later this month for the third time this year.

The producer price index for final demand slipped 0.1 percent last month after being unchanged in July. August’s fall in the PPI was the first since February 2017. In the 12 months through August, the PPI rose 2.8 percent, slowing further after July’s 3.3 percent increase.

Economists polled by Reuters had forecast the PPI increasing 0.2 percent in August and advancing 3.2 percent year-on-year.

A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 percent last month. The so-called core PPI gained 0.3 percent in July.

In the 12 months through August, the core PPI increased 2.9 percent after rising 2.8 percent in July.

U.S. financial markets were little moved by the data. The link between producer and consumer prices has weakened after the government revamped the PPI basket and changed methodology several years ago.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 2.0 percent in July, hitting the U.S. central bank’s 2 percent target for the third time this year.

Economist expect the Trump administration’s import tariffs on lumber, washing machines, solar panels, steel and aluminum, as well as a range of Chinese goods, to put upward pressure on inflation in the coming months.

Wholesale food prices fell 0.6 percent last month, pulled down by sharp declines in the costs of eggs and fresh fruits and melons. Food prices, which dipped 0.1 percent in July, have now decreased for three straight months.

Wholesale energy prices rose 0.4 percent, with gasoline prices increasing 0.6 percent after slipping 0.1 percent in the prior month. Energy prices fell 0.5 percent in July.

Overall, the cost of wholesale goods was unchanged in August after edging up 0.1 percent in July. Prices for iron and steel scrap fell 5.6 percent in August, the biggest drop since October 2017. Nonferrous scrap prices decreased 8.7 percent, the largest decline since January 2009.

The cost of services slipped 0.1 percent last month, led by a 0.9 percent decline in the index for trade services, which measures changes in margins received by wholesalers and retailers. Services dipped 0.1 percent in July.

Over 80 percent of the drop in the cost of services last month was attributed to margins for machines and equipment wholesaling, which fell 1.7 percent

The cost of healthcare services rose 0.3 percent as a 0.5 percent drop in prices for hospital outpatient care was offset by a 0.6 percent jump in the cost of doctor visits, which was the largest gain since June 2010. There were also increases in prices of hospital inpatient and dental care.

Healthcare prices ticked up 0.1 percent in July.

Those healthcare costs feed into the core PCE price index.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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opec

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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