The Bureau of Labor Statistics reported Thursday that wholesale prices rose far more than expected in July, indicating that inflation may still pose a potential threat to the US economy. The Producer Price Index (PPI) for final demand goods and services increased 0.9% month-over-month, significantly higher than the Dow Jones survey expectation of 0.2%, marking the largest single-month gain since June 2022.
Core PPI, excluding food and energy prices, rose 0.9%, far exceeding the expected increase of 0.3%. The index excluding food, energy, and trade services gained 0.6%, the largest increase since March 2022. On a year-over-year basis, overall PPI climbed 3.3%, representing the largest 12-month increase since February this year and significantly above the Federal Reserve's 2% inflation target.
Services prices emerged as the primary driver, surging 1.1% month-over-month in July, also marking the largest increase since March 2022. Trade services margins rose 2%, which is related to the continued implementation of tariff policies under the Trump administration. Additionally, 30% of the services sector gains stemmed from a 3.8% increase in machinery and equipment wholesale prices. Portfolio management fees spiked 5.8%, while airline passenger service prices rose 1%.
Following the data release, stock index futures declined and short-term Treasury yields moved higher.
Although PPI receives less attention than the Bureau of Labor Statistics' Consumer Price Index (CPI), it provides important insights into price transmission mechanisms. These two indicators together form the foundation for the Commerce Department's Personal Consumption Expenditures Price Index (PCE) - the Federal Reserve's primary inflation forecasting tool, which will be updated later this month.
Earlier this week, CPI data largely met expectations, and markets had been nearly certain that the Fed would cut rates at its September meeting. According to CME Group's FedWatch tool, the probability of a September rate cut declined only marginally after the data release.
These reports come amid growing questions about the accuracy of Bureau of Labor Statistics data. Trump dismissed the former Bureau of Labor Statistics commissioner earlier this month and indicated his intention to nominate Heritage Foundation economist E.J. Antoni to lead the agency. Antoni has long criticized the Bureau of Labor Statistics and even proposed suspending monthly nonfarm payroll reports until data accuracy can be ensured.
Budget cuts and layoffs have forced the Bureau of Labor Statistics to change its data collection methods. The July PPI report marks the first since the agency removed approximately 350 categories from its detailed input cost statistics.
