PPI Crash: Unveiling Inflation’s Future or Corporate Gouging? | Nucleus Investment Insights

Globally producer price indexes have turned down quite decisively. China is trying to deal with deflation.

 

There are two main explanations, with diametrically diverging investment outcomes.
Under the first scenario, producer price inflation is a leading indicator for consumer price inflation. Falls in the producer price indexes will inevitably flow through to inflation indexes. Sell stocks, buy bonds.

Under the second scenario, the gap is an indicator that companies continue to be able to expand margins. It is a sign that companies are raising prices to consumers faster than their own costs are growing. Buy stocks

In this week’s podcast, Nucleus Wealth’s Chief Investment Officer Damien Klassen and Senior Financial Adviser Samuel Kerr dig into the arguments and look at the evidence.

Agenda:

  • What is the Producer Price Index
  • Divergence or lag
  • Two options: good for margins, terrible for margins
  • Reporting season
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