Question

On October 15, 2019, the Department of Labor announced that the Producer Price Index (PPI) experienced an unexpected 1.1 percent increase in September, the largest jump in 9 years. Based on this information alone, what would you expect to happen to interest rates and stock prices?

		We should expect higher interest rates and lower stock prices.
		We should expect higher interest rates and higher stock prices.
		We should expect lower interest rates and lower stock prices.
		We should expect lower interest rates and higher stock prices.

Answer 1

The correct answer is option A. We should expect higher interest rates and lower stock prices.

An increase in PPI indicates the rise in the inflation, which leads to the increase in the nominal interest rates.

The cost of goods and services increases which is passed on to the consumers by the company. This results in the slowdown in the demand for the company. So, the prices of the stock decreases.

Option B is incorrect because we expect lower stock prices, not higher.

Option C is incorrect because we expect higher interest rates, not lower

Option D is incorrect because we expect higher interest rates, not lower and lower stock prices, not higher.