Wholesale prices in the United States rose much more than expected in July, potentially preventing the Federal Reserve (Fed) from cutting interest rates in September, the Bureau of Labor Statistics (BLS) reported on Thursday.
The Producer Price Index (PPI), which measures the price of final demand goods and services, jumped 0.9% month-on-month, compared with the Dow Jones estimate of 0.2%. Excluding food and energy, the core PPI also rose 0.9%, beating expectations of 0.3%. Excluding food, energy and trade services, the PPI rose 0.6%, the biggest gain since March 2022.
On an annualized basis, the core PPI rose 3.3%, the biggest 12-month jump since February and well above the Fed’s 2% inflation target. Inflation in the services sector was the main driver, rising 1.1% in July, the highest since March 2022. Traded services margins rose 2%, as President Donald Trump’s tariffs progressed. About 30% of the services increase came from a 3.8% jump in wholesale sales of machinery and equipment.
Stock futures fell after the report, while short-term Treasury yields rose. While the PPI is less widely followed than the Consumer Price Index (CPI), it provides an important snapshot of prices in the supply chain. Both measures will influence the Commerce Department’s Personal Consumption Expenditures (PCE) Price Index, the main measure of the Fed’s inflation forecast, which will be updated later this month.
The PPI increase comes as the accuracy of BLS data has been increasingly questioned. Earlier this month, President Trump fired the previous BLS Commissioner and is set to nominate Heritage Foundation economist E.J. Antoni as the new head. Antoni has criticized the BLS and suggested that the monthly nonfarm payrolls report be temporarily suspended until the accuracy of the data is confirmed. Budget constraints and layoffs also forced the BLS to change its data collection methods, including eliminating about 350 input cost categories in the July PPI report.
