Oil reignites US inflation and pushes rates to new highs

Oil reignites US inflation and pushes rates to new highs. In August, producer prices increased by 0.4% over one month and 5.4% over one year, slightly more than expected on this second measure. The reaction was immediate: the ten-year Treasury yield moved closer to 4.9%, while technology stocks and cryptocurrencies experienced renewed risk aversion. The signal nevertheless remains mixed. The acceleration comes mainly from energy, while monthly core inflation comes in below forecasts.

The producer price index published by the Labor Department rose 0.4% in August, in line with expectations, after a revised increase to 0.1% in July. Over twelve months, its increase reached 5.4%, against a consensus close to 5.3%.

The increase is mainly concentrated in goods, whose prices rose by 1.1%. Energy jumped 4.2%, driven in particular by oil above $100 and the rise in the price of diesel. Services only increase by 0.1%.

Excluding food and energy, the PPI increased by 0.2% over one month, less than the 0.3% expected, and by 4.6% over one year. The report therefore does not describe a uniform reacceleration of prices: it shows above all the transmission of the energy shock to business costs.

This data nevertheless complicates the Federal Reserve's decision. They strengthen the arguments in favor of a restrictive policy, without making a rate increase automatic. Consumer inflation will provide a more decisive signal before the next Fed meeting.

The two-year Treasury yield was around 4.45%, the ten-year yield was around 4.9% and the thirty-year yield was above 5.3%. The increase in yields automatically means a drop in the price of bonds already in circulation, particularly marked for long-maturity securities.

The buyback of $6 billion in long bonds announced by the Treasury was not enough to calm the market. Compared to the approximately $32 trillion in marketable securities, the operation remains modest in the face of concerns about inflation, deficits and the growing supply of US debt. Reuters points out that this intervention supported liquidity more than it changed market balance.

For stocks, higher yields increase the cost of financing and reduce the present value of future earnings. Technology, real estate and growth stocks are therefore the most exposed. Nasdaq 100 futures were down about 1.1% after the release.

Crypto currently follows the same logic. Bonds paying around 5% become more attractive against Bitcoin and altcoins, while a firmer dollar and more expensive liquidity favor sales. The argument for Bitcoin as protection against inflation persists in the long term, but it fades in the short term in the face of the classic reflex of reducing risk.