PPI Surges 0.9% in July, Shaking Fed Rate Cut Hopes and Rattling Bond Markets

Hot PPI Report Rekindles Fed Rate Uncertainty

U.S. wholesale prices surged in July, with the Producer Price Index (PPI) rising 0.9% month-over-month, far exceeding the 0.2% Dow Jones estimate. This marks the largest monthly gain since March 2022 and raises fresh doubts over the Federal Reserve’s near-term rate cut prospects. Year-over-year, headline PPI increased 3.3%, also the biggest annual gain since February.

For traders, the report signals a potential stalling in disinflation momentum, pushing rate-sensitive instruments—especially Treasuries and rate swaps—back into focus.

Core and Supercore Measures Flash Warning Signs

The inflation beat wasn’t limited to headline data. Core PPI, excluding food and energy, also rose 0.9%, tripling consensus expectations. The supercore measure—which strips out food, energy, and trade—gained 0.6%, marking the sharpest monthly rise in 28 months.

These figures indicate a reacceleration in underlying price pressures, particularly troubling given that the Federal Reserve watches supercore inflation as a proxy for stickier service-sector pricing.

Services Inflation Leads the Surge

Much of the July inflation came from services, with final demand services prices climbing 1.1%, also the strongest monthly rise since March 2022. Trade margins rose 2.0%, led by machinery and equipment wholesaling, while traveler accommodation and securities brokerage services added to the momentum.

This broad-based rise in service costs could signal more sustained inflation, making it harder for policymakers to justify easing financial conditions.

Policy Implications: September Cut Now Less Likely

With PPI readings blowing past forecasts across all tiers—headline, core, and supercore—the Federal Reserve may hesitate to ease rates at its upcoming meeting. While one inflation report doesn’t set policy, this print runs counter to recent expectations for a September cut.

Markets may now recalibrate toward a “higher-for-longer” stance, particularly if next week’s CPI or employment reports show similar strength.

Market Forecast: Bearish for Bonds, Mixed for Equities

The PPI data pressures Treasury yields higher and weighs on interest-rate sensitive equities, including real estate and utilities. However, industrial and consumer-facing stocks tied to sectors seeing margin expansion—like wholesalers and travel—may benefit near-term.

Outlook: Bearish for U.S. bonds and Fed-sensitive sectors. Selective bullish bias for equities in inflation-resilient or margin-expanding industries.

More Information in our Economic Calendar.