The U.S. Producer Price Index (PPI) held steady in July, defying expectations for a modest increase and reinforcing the view that wholesale inflation is cooling after a tariff-driven surge earlier this year. The Bureau of Labor Statistics reported Wednesday that the final-demand PPI was flat month-over-month, while economists had penciled in a 0.2% gain. June's reading was revised down to a 0.1% decline.
The softer-than-expected producer price data follows a similarly benign consumer inflation report earlier this week, suggesting that price pressures are moderating across the pipeline. The easing comes after a period of elevated inflation fueled by President Donald Trump's tariffs and geopolitical tensions, including the conflict involving Iran.
Market reaction was muted but positive: U.S. stock futures edged higher and Treasury yields slipped as investors increased bets that the Federal Reserve will hold off on raising interest rates at its September meeting. The probability of a rate hike faded further following the release.
Core producer prices rise less than forecast
Excluding the volatile food and energy components, core producer prices advanced 0.2% in July, below the 0.3% consensus estimate and slower than June's upwardly revised 0.4% gain. On a year-over-year basis, headline producer inflation eased to 4.7%, missing the 4.9% forecast and decelerating from June's revised 5.5% pace. Core producer inflation stood at 4.2%, slightly above the 4.1% projection but down from the prior month's 4.7%.
The report highlighted that lower energy costs continued to offset price increases in other sectors. Goods prices fell 0.7% during the month, led by a 3.1% drop in energy prices. Gasoline prices tumbled 5.7%, while food prices declined 0.9%. Excluding food and energy, core goods prices edged up just 0.1%.
Services prices rose 0.2%, largely driven by a 6.5% jump in portfolio management costs—a category that often sees outsized gains at the start of a quarter due to reporting practices. Excluding that component, services inflation was more subdued.
“Net, net, pipeline pressures at the lower stages of production are not adding to the inflation risks the consumer faces,” said Chris Rupkey, chief economist at Fwdbonds, in a CNBC report. “It counts as good news that for a second consecutive month, PPI final demand prices have not gone up, adding to the cost of living crisis faced by Americans.”
Labor market remains resilient
Separate data from the Labor Department on Thursday showed initial jobless claims rose by 9,000 to a seasonally adjusted 209,000 for the week ended Aug. 8, slightly above the 202,000 expected by economists. Despite the increase, claims remain near the lower end of this year's range of 189,000 to 230,000, indicating that layoffs are still limited.
Continuing claims, which track the number of people receiving unemployment benefits after their first week, fell by 22,000 to 1.777 million in the week ended Aug. 1. The latest figures follow last week's government report showing nonfarm payrolls unexpectedly declined by 23,000 in July, with May and June gains revised lower. Economists note that payroll data can be volatile during the summer due to seasonal adjustment quirks tied to the end of the school year.
Additional evidence of labor market stability came from a National Federation of Independent Business survey, which showed small business hiring improved in July after four consecutive monthly declines. The combination of easing wholesale inflation and a still-solid labor market supports the case for the Fed to maintain its current policy stance.
For investors, the latest data points to a “Goldilocks” scenario of moderating price pressures without a sharp deterioration in employment. However, the persistence of core inflation above the Fed's 2% target suggests that policymakers will remain cautious. As US inflation cools, the focus now shifts to whether the trend continues in the coming months.
In global markets, the cooling U.S. inflation has also influenced sentiment, with Japan's wholesale inflation still running high, and bitcoin slipping despite the favorable macro backdrop.
This article is for informational purposes only and does not constitute financial advice.
