Producer Prices Rise, Distillate Inventories Gain Less-than-expected

- The Producer Price Index for July rose 1.0% versus estimates of a .5% increase and an unchanged reading in June.
- The PPI Ex Food & Energy for July rose .4% versus estimates of a .1% increase and a .1% fall in June.
- The EIA reported that crude inventories rose 241K barrels vs. estimates of a 1.25M gain. Gas inventories fell 4.97M barrels vs. estimates of a 1.5M barrel fall. Distillate inventories rose 1.19M barrels vs. estimates of a 1.9M barrel rise.

BOTTOM LINE: Prices paid to US producers rose in July by the most in nine months as energy costs surged, Bloomberg reported. As well, the core measure rose the most since January. Costs of intermediate goods rose 1.0% versus a .1% gain in June. Food prices fell .3% after a 1.1% decline in June and capital equipment prices rose .5% following a decline of .2%. The Producer Price Index has a high correlation with the Commodity Research Bureau Index. The last time we saw a run-up in the CRB and the PPI spiked, worries that increases would spill over into the CPI proved unfounded. I expect the same this time.

This is the first time in recent memory that oil has reacted negatively to bullish inventory data. Crude is down $1.20/bbl. This is bullish for stocks.