A key gauge of wholesale inflation showed a smaller-than-expected increase in July, potentially paving the way for the Federal Reserve to consider lowering interest rates.
The Producer Price Index (PPI), which reflects the prices producers receive for goods and services, rose by 0.1% in July, according to the Labor Department’s Bureau of Labor Statistics. Excluding volatile food and energy prices, the core PPI remained unchanged. Economists had anticipated a 0.2% rise in both the overall and core PPI.
A more specific core measure, excluding trade services, increased by 0.3%. Year-over-year, the headline PPI climbed 2.2%, a decrease from the 2.7% reported in June.
Following the report, stock market futures advanced while Treasury yields declined. Despite a 0.6% rise in final demand goods prices—driven largely by a 1.9% increase in energy prices, including a 2.8% rise in gasoline—the overall inflationary pressure was subdued. A 0.2% drop in services prices, the largest decline since March 2023, countered this increase. Notably, trade services prices fell by 1.3%, and wholesale margins for machinery and vehicles plummeted by 4.1%. However, a 2.3% rise in portfolio management partially mitigated the drop-in services prices.
The PPI is a leading inflation indicator, offering insights into price trends from the producer’s perspective. The Consumer Price Index (CPI), set for release on Wednesday, measures consumer-facing prices and is also anticipated to show a 0.2% monthly increase in both headline and core readings.
Market expectations are now focused on the Federal Reserve’s September meeting, with a rate cut widely anticipated. The debate centers on whether the Fed will opt for a 25 or 50 basis point reduction. Meanwhile, the Fed remains committed to its 2% inflation target, with recent data generally aligning with this goal.
Additionally, a New York Fed survey released Monday revealed that consumer inflation expectations for three years out have dropped to 2.3%, the lowest in the survey’s 11-year history. However, lower-income households are increasingly affected by inflation, with a rise in the likelihood of missing debt payments and a decline in credit access and spending expectations-
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