Wholesale Inflation Hotter Than Expected in July

Wholesale prices rose far more than expected in July, providing a potential sign that inflation is still a threat to the U.S. economy, a Bureau of Labor Statistics report Thursday showed.

The producer price index, which measures final demand goods and services prices, jumped 0.9% on the month, compared with the Dow Jones estimate for a 0.2% gain. It was the biggest monthly increase since June 2022.

Excluding food and energy prices, core PPI rose 0.9% against the forecast for 0.3%. Excluding food, energy and trade services, the index was up 0.6%, the biggest gain since March 2022.

On an annual basis, headline PPI increased 3.3%, the biggest 12-month move since February and well above the Federal Reserve’s 2% inflation target.

Services inflation provided much of the push higher, rising 1.1% in July for the largest gain also since March 2022. Trade services margins climbed 2%, coming amid ongoing developments in President Donald Trump’s tariff implementations.

In addition, 30% of the increase in services came from a 3.8% rise in machinery and equipment wholesaling. Also, portfolio management fees surged 5.4% and airline passenger services prices climbed 1%.

Stock market futures fell following the release, while shorter-duration Treasury yields moved higher.

Though PPI is followed less closely than the BLS’ consumer price index, it provides important information on pipeline prices. Together, the measures feed into the Commerce Department’s personal consumption expenditures price index, the Fed’s primary inflation forecasting gauge, which will be updated later this month.

“The fact that PPI was stronger-than-expected and CPI has been relatively soft suggests that businesses are eating much of the tariff costs instead of passing them onto the consumer,” said Clark Geranen, chief market strategist at CalBay Investments. “Businesses may soon start to reverse course and start passing these costs to consumers.”

With CPI coming in right around expectations earlier this week, markets had been pricing a virtual certainty that the Fed will lower its key interest rate when it meets next in September. Following the release, market-implied odds of a September cut decreased but only slightly, according to the CME Group’s FedWatch tool. Traders did substantially lower the probability for three cuts this year.

“The large spike in the Producer Price Index this morning shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet,” wrote Chris Zaccarelli, chief investment officer at Northlight Asset Management. “Given how benign the CPI numbers were on Tuesday, 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.”

However, the White House said the details of the report showed that business were not passing through the costs of tariffs to consumers.

The reports come amid escalating questions over BLS data accuracy.

Trump earlier this month fired the former BLS commissioner and said he intends to nominate Heritage Foundation economist E.J. Antoni as the next head of the bureau. Antoni has been a critic of the BLS and even has floated the idea of suspending the monthly nonfarm payrolls report until data accuracy can be better ensured.

The BLS has been hamstrung by budget cuts and layoffs that have forced it to alter the way it collects data. July’s PPI report was the first since the bureau eliminated some 350 categories from the exhaustive count of input costs.