Where to start

The July Producer Price Index (PPI) remained unchanged month-over-month, falling short of the market's 0.2% increase forecast. Core PPI, which excludes food and energy, rose 0.2% month-over-month, below the 0.3% prediction. PPI measures wholesale inflation, and this latest data point signals easing price pressures after several months of rising inflation.

The Bureau of Labor Statistics reported on Thursday that wholesale costs for goods and services were flat in July, providing a fresh sign that inflation is cooling. The PPI, which tracks potential upstream inflation pressures, posted no change month-over-month, while the Dow Jones consensus estimate had called for a 0.2% gain. June's PPI was revised from a previously reported 0.3% decline to a 0.1% drop.

Core PPI, excluding food and energy, edged up 0.2% month-over-month, falling short of the 0.3% market expectation. Core PPI excluding trade services climbed 0.4% month-over-month. On an unadjusted basis, the headline PPI index rose 4.7% year-over-year, while core PPI increased 4.2% year-over-year. This trend aligns with several other economic indicators: inflation, which had heated up earlier in the year due to Middle East conflicts and the Trump administration's tariff policies, now appears to be slowing.

Why this matters

Following the data release, US stock index futures moved higher, and Treasury yields declined. Traders further reduced their bets on a Federal Reserve interest rate hike in September. "All in all, cost pressures in the middle and downstream segments of the supply chain are not adding to the inflation risk faced by consumers," said Chris Rupkey, chief economist at Fwdbonds. "It's undoubtedly good news that final demand PPI has not risen for the second consecutive month, not exacerbating the cost-of-living crisis for Americans."

Service prices rose 0.2% month-over-month, driven by a 6.5% surge in portfolio management fees—a component that often experiences significant volatility in the first month of a quarter due to reporting rules. Goods prices fell 0.7% month-over-month, dragged down by a sharp decline in energy costs, with the gasoline index dropping 5.7%. Food prices decreased 0.9% month-over-month, though core goods prices edged up 0.1%.

Just a day earlier, the Bureau of Labor Statistics reported that the July Consumer Price Index (CPI) rose only 0.1% month-over-month, with falling energy prices alleviating inflationary pressure. However, the headline CPI was still up 3.4% year-over-year, significantly above the Fed's 2% target. Core consumer inflation cooled more noticeably, rising 0.2% month-over-month and 2.5% year-over-year, falling back to pre-conflict levels.

Market expectations shift

Market sentiment has shifted recently: while investors had previously broadly bet on the Federal Open Market Committee raising rates at its September 15–16 meeting, more traders now anticipate the rate hike window moving to October or December. In other economic data, for the week ending August 8, seasonally adjusted initial jobless claims rose to 209,000, up 9,000 from the prior week and above the 204,000 market expectation.