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(Kitco News) - The gold market remains stuck in neutral as the U.S. economy continues to deal with mixed inflation pressures.
Wednesday, U.S. Labor Department said its Producer Price Index (PPI) dropped sharply by 0.3% last month following April's increase of 0.2%. According to consensus forecasts, the data was cooler than expected, with economists looking for a drop of 0.1%.
In the last 12 months, wholesale inflation rose 1.1%, the report said.
However, stripping out volatile food and energy prices, the data showed that core inflation remains stubbornly elevated, rising 0.2% last month and in line with expectations. For the year, core inflation rose 2.8%.
The gold market, while holding on to some gains, is not seeing much reaction to the latest inflation numbers. August gold futures last traded at $1,966.70 an ounce, up 0.41% on the day.
Economists pay close attention to producer prices as it is a leading indicator for consumer prices. Traditionally, companies pass on higher costs to their customers. Economists have said that the drop in headline inflation is good news for consumers; however, stubborn core inflation indicates that higher prices are becoming embedded in the broader economy.
The latest inflation data has not impacted interest rate expectations ahead of the Federal Reserve's monetary policy decision, which will be announced later in the day. Markets fully expect the U.S. central bank to leave interest rates unchanged in a range between 5.00% and 5.25%. However, there are solid expectations for the tightening cycle to continue in July.
While inflation has dropped sharply from the highs seen last year, economists note it is still well above the Federal Reserve's 2% target.
