How does PPI / CPI affect the stock market?

Answer 1

PPI and CPI are indices, for wholesale and consumer price inflation. Inflation is the natural enemy of the stock and bond market. Inflation, the rising of costs that companies/people have to pay and the hike in prices/wages that they have to earn in order to pay for higher costs, based on expectations.

Investors want to have the highest "real" return on their investment. Real return is nominal return less inflation. If you think that prices are going to going to rise next year by 5% and you earn 15% on a checking account, you do the quick math and know that you are going to earn about 10% real returns (15% minus the 5% inflation). You would keep a decent amount of money in the bank, because that is a great real return. Let's say that prices are rising 1400% per year, like they are in Zimbabwe right now. You wouldn't keep any money in your 15% bank account because your money becomes weaker (buys less and less goods and services) sitting in your bank account just through the passage of time.

The same thing happens with the stock market. The stock market prices in investors' expectations of value of companies based on future real earnings. So the theoretical value of stocks decreases when inflation rises.

Inflation also has fundamental impacts on the underlying economy and companies themselves. The economy loses steam with inflation as people are less willing to put in deposits, which reduces liquidity resources for the capital markets, which spirals interest rate up for the debt market, which then raises costs for companies, which then causes more inflation... as the spiral of inflation goes up and up and up - all the while causing more volatility and less stability for investors/banks.

CPI and PPI are "lagging" indicators in that they look backward at how prices have changed on a basket of goods in the past. Monetary and fiscal policy takes about 6-12 months to filter through the economy. The stock market factors in future effects. Hence, when PPI and CPI is high, this may mean that the central bank (e.g. Fed, BOE, RBA) will have to hike overnight deposit rates in order to head off inflation 6-12 months down the road. The stock market is especially susceptible to inflation now since the market expects a rate cut (i.e. it factors in a decrease in rates in 2007 as shown by futures rates) and hasn't had an overnight increase in a while. Continued CPI/PPI increases would be mean that there would be a sudden shift in perceptions that Central Banks would have to continue hiking to once again try and snuff out the spiral of inflation.

Answer 2

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Answer 3

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/6dkNW

Answer 4

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Answer 5

High inflation is bad for the economy and stock market since it erodes the value of your money. When inflation rises, the feds raise interest rates, and that slows down the economy, creating the danger of recession. What the market likes to see is moderate inflation and strong economic growth. High inflation and poor stock market performance always go together. If the inflation report this week is higher than expected, you will see the market tank.

Answer 6

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How does PPI / CPI affect the stock market?

Answer 7

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Answer 8

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Answer 9

I'm curious as well

Answer 10

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The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. opposite of deflation. Mainstream economists believe that high rates of inflation are caused by high rates of growth of the money supply.[2] Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply. There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures consumer prices, and the GDP deflator, which measures price variations associated with domestic production of goods and services. Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate. This rate can be calculated for many different price indices, including: Consumer price indices (CPIs) which measure the price of a selection of goods purchased by a "typical consumer." In the UK, an alternative index called the Retail Price Index (RPI) uses a slightly different market basket. Cost-of-living indices (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes. Producer price indices (PPIs) which measure the prices received by producers. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" as consumer inflation, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale Price Index. Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee. The GDP Deflator is a measure of the price of all the goods and services included in Gross Domestic Product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure. Capital goods price Index, although so far no attempt at building such an index has been made, several economists have recently pointed out the necessity of measuring capital goods inflation (inflation in the price of stocks, real estate, and other assets) separately.[citation needed] Indeed a given increase in the supply of money can lead to a rise in inflation (consumption goods inflation) and or to a rise in capital goods price inflation. The growth in money supply has remained fairly constant through since the 1970's however consumption goods price inflation has been reduced because most of the inflation has happened in the capital goods prices. Other types of inflation measures include: Regional Inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US. Historical Inflation Before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology. This is equivalent to not adjusting the composition of baskets over time.