U.S. wholesale prices posted fastest growth in 3 years
A sharp rise in PPI could reduce the chances of a Fed rate cut in September
The wholesale value of goods and services - the segment where rising inflation usually shows up earliest - in July showed the strongest increase in three years according to the U.S. Bureau of Labor Statistics.
The Producer Price Index (PPI) rose 0.9% in July after zero change in June, the U.S. government reported. This may signal a marked acceleration in price growth associated with duties in the U.S., MarketWatch writes.
The annualized wholesale inflation rate climbed to 3.3% from 2.3%, reaching a five-month high. Another indicator, the core producer price index, considered a more stable measure of wholesale inflation, rose 0.6% in July.
Annualized growth in the core producer price index accelerated to 2.8% from 2.5%.
How have the markets reacted?
Futures on S&P 500 fell by 0.4%. The yield on two-year U.S. Treasury bonds, more sensitive to changes in monetary policy, rose by 4 basis points - to 3.71%, notes Bloomberg.
The dollar index strengthened against most major currencies.
What does that mean?
The Producer Price Index (PPI) is tracked less closely than the U.S. Bureau of Labor Statistics' Consumer Price Index (CPI), but it provides important information about price dynamics early in the supply chain, CNBC writes. Both indicators are used to calculate the U.S. Commerce Department's Personal Consumption Expenditures (PCE) price index, the main inflation indicator the Fed is targeting. Updated PCE data will be released later this month.
As the Consumer Price Index (CPI) data released earlier in the week came in close to forecasts, the markets were laying into forecasts an almost guaranteed cut in the Fed's key rate at the next meeting in September, the channel notes. However, after the release of the PPI report, the probability of a September cut, according to the CME Group's FedWatch tool, slightly decreased.
"The fact that PPI came in higher than expected and CPI (consumer price index) remains relatively soft suggests that businesses are still picking up most of the tariff costs rather than passing them on to the consumer. However, companies may soon change their approach and start shifting those costs to customers," Bloomberg quoted Clark Geranen of CalBay Investments as saying.
According to Chris Zaccarelli of Northlight Asset Management, the PPI jump shows that inflation is permeating the economy, even if consumers aren't feeling it yet.
"Given how quiet Tuesday's CPI data was, this is an extremely unpleasant surprise that is likely to dampen optimism about a 'guaranteed' rate cut next month," he said.
This article was AI-translated and verified by a human editor
