The U.S. Producer Price Index (PPI) for July surged more than expected, a new report from the Bureau of Labor Statistics (BLS) showed today. The data suggests that inflationary pressures may be building in the economy, complicating the outlook for the Federal Reserve's interest rate policy.
Key Figures from the Report:
Final Demand PPI: Rose by 0.9% in July on a seasonally adjusted basis, following a flat reading in June. This was the largest monthly increase since May 2022.
Annual Rate: The unadjusted index for final demand advanced 3.3% for the 12 months ended in July, a significant jump from 2.4% in June and the largest 12-month increase since February.
Core PPI: The index for final demand less foods, energy, and trade services—a key measure of underlying inflation—increased by 0.6% in July, its largest monthly gain since March 2022.
Services vs. Goods: The increase was broad-based, but services were the primary driver, rising 1.1% in July. Goods prices also increased, advancing 0.7%, their largest gain since January.
The report indicates that rising costs are affecting a wide range of producers. Within services, trade services—which measure changes in the margins received by wholesalers and retailers—jumped 2.0%. Goods prices were boosted by a sharp 38.9% increase in fresh and dry vegetables, along with gains in meats and various energy products.
The hotter-than-expected PPI report comes just after a more benign Consumer Price Index (CPI) reading earlier in the week, which had led to increased optimism for a September interest rate cut from the Federal Reserve. The new PPI data, however, may temper those expectations. Analysts are now suggesting the report will reinforce the Fed's "wait and see" approach, and could lead to a reassessment of the likelihood and size of any potential rate cuts in the near term.
The report also raises questions about the impact of recent U.S. tariffs, with some economists suggesting that the jump in wholesale prices could be a sign of tariff-related inflation making its way through the economy. While the PPI data precedes consumer prices, the significant increase in producer costs could eventually translate to higher prices for consumers.
