US Wholesale Inflation Unexpectedly Rises 0.9 Percent in July

A key pipeline inflation indicator unexpectedly increased in July, driven mainly by an increase in wholesale services.

According to data released by the Bureau of Labor Statistics on Aug. 14, the producer price index (PPI) increased by 0.9 percent in July, from the zero percent reading in June.

The consensus estimate among economists for the PPI, which measures prices paid for goods and services by businesses, suggested a 0.2 percent increase.

A majority of the broad-based increase was driven by a more than 1 percent rise in final demand services, the largest monthly gain since March 2022, the bureau said.

Within the services index, a 2 percent boost for trade services was the chief cause. Declines in hospital outpatient care, furniture retail, and pipeline transportation for energy products partially offset this.

Prices for goods increased by 0.7 percent, with 40 percent of the jump attributed to food, particularly fresh and dried vegetables.

Prices also went up for eggs for fresh use (7.3 percent), diesel fuel (14.9 percent), jet fuel (12.5 percent), and meats (4.9 percent). Conversely, prices went down for wheat (minus 3.2 percent), processed poultry (minus 5.1 percent), gasoline (minus 1.8 percent), and natural gas (minus 2.1 percent).

On a 12-month basis, producer prices advanced by a higher-than-expected 3.3 percent from an upwardly revised 2.4 percent.

Core wholesale inflation, which strips out noisy signals from volatile energy and food prices, also increased by 0.9 percent from a flat reading in June.

Market watchers had penciled in a 0.2 percent boost.

Inflation in the PPI excluding food, energy, and trade jumped to 2.8 percent year over year.

Economists closely monitor producer prices because they can signal future inflation trends, as businesses typically pass higher costs onto consumers, foreshadowing potential increases to the consumer price index (CPI).

Since President Donald Trump announced his global tariff plans, the PPI has been subdued, signaling that higher levies could be starting to appear in the hard economic data.

“The large spike in the [PPI] … shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a note emailed to The Epoch Times.

This week, the headline annual inflation rate for July remained unchanged at 2.7 percent, a lower-than-expected level. Core inflation rose to 3.1 percent from 3 percent, higher than the market forecast. July’s CPI pointed to some softening among tariff-sensitive items.

The next key inflation report will be trade prices. Import prices have been little changed this year, and the July numbers are expected to be flat. Export prices are also projected to rise by 0.1 percent.

Later in August, the Federal Reserve’s preferred personal consumption expenditures price index for July will be published, and forecasts suggest that it will hold steady.

Market Reaction

U.S. stocks fell in premarket trading following the release of hot wholesale inflation data.

The blue-chip Dow Jones Industrial Average, the broader S&P 500, and the tech-heavy Nasdaq Composite slipped by approximately 0.4 percent.

Yields for short-term U.S. Treasury securities ticked up, with the one- and two-year yields rising to 3.88 percent and 3.71 percent, respectively.

The latest PPI data somewhat dashed expectations that the U.S. central bank will pull the trigger on a quarter-point interest rate cut in September at the Federal Open Market Committee meeting.

“The increase in PPI was driven by services, and there were increases in general services costs *and* in the Trade component (i.e. wholesale/retail margins),” Liz Thomas, head of investment strategy at SoFi, wrote in an X post on Aug. 14. “The Fed won’t like this report.”

Still, the futures market is overwhelmingly betting that the Fed will lower the benchmark federal funds rate—a key policy rate that influences business, consumer, and borrowing costs—from its current target range of 4.25 percent to 4.5 percent.

“Given how benign the CPI numbers were on [Aug. 12], this is a most unwelcome surprise to the upside and is likely to unwind some of the optimism of a ‘guaranteed’ rate cut next month,” Zaccarelli said.

The Fed will hold its next two-day policy meeting from Sept. 16 to Sept. 17.

By then, the Fed will have digested the August jobs report and another batch of inflation data.