Producer prices were flat in July, the Bureau of Labor Statistics reported Thursday, delivering the second piece of a one-two punch that’s reshaping the inflation outlook — and the Fed’s rate-hike calculus along with it.
A day after the consumer price index showed inflation cooling to 3.4% annually, the producer price index confirmed that pipeline pressures are easing too. Wholesale prices didn’t budge last month — zero. Economists had expected a 0.2% increase. Instead, they got a data point that, paired with Wednesday’s CPI, tells an increasingly consistent story: the inflation surge driven by the Iran war and Trump-era tariffs is losing steam.
The numbers
- Headline PPI: 0.0% month-over-month — below the 0.2% consensus estimate. June was revised to -0.1% (previously -0.3%).
- Core PPI (ex-food & energy): +0.2% — below the 0.3% forecast.
- Core PPI (ex-food, energy & trade): +0.4%, driven partly by quarterly portfolio management reporting quirks.
- Year-over-year: Headline PPI +4.7%, core +4.2% (unadjusted).
- Goods prices: -0.7%, helped by a 3.1% drop in energy and a 5.7% slide in gasoline.
- Services prices: +0.2%, with a 6.5% jump in portfolio management costs (a category that tends to spike at quarter-start due to reporting conventions).
- Jobless claims: 209,000 seasonally adjusted for the week ending August 8 — up 9,000 from the prior week and above the 204,000 estimate. Still historically low.
Source: Bureau of Labor Statistics, via CNBC.
What drove the flat print
The goods side did the heavy lifting. Energy costs fell 3.1% on the month, with gasoline alone sliding 5.7% — a significant tailwind for both producers and, eventually, consumers. Food prices at the wholesale level dropped 0.9%. Core goods ticked up just 0.1%, essentially treading water.
On the services side, the 6.5% surge in portfolio management fees looks dramatic — and it is — but it’s a well-known seasonal artifact. Fund managers typically report fee income at the start of each quarter, creating a one-month spike that reverses in subsequent months. Strip that out (and trade services), and the picture is milder than the core PPI headline suggests.
“Net, net, pipeline pressures at the lower stages of production are not adding to the inflation risks the consumer faces,” said Chris Rupkey, chief economist at Fwdbonds. “It counts as good news that for a second consecutive month, PPI final demand prices have not gone up.”
Market reaction
Stock futures turned positive on the release. Treasury yields moved lower. And critically, traders continued to push back their expectations for the next Fed rate hike — from September to October or December. The CME FedWatch tool now shows the September meeting as a coin toss at best, with the odds of a hike dropping sharply from where they stood just two weeks ago.
The back-to-back inflation reports this week — CPI at +0.1% on Wednesday, PPI flat on Thursday — have given the doves on the FOMC something real to point at. After months of arguing that the Iran war and tariff effects would prove transitory, the data is finally cooperating.
The bigger picture
The inflation cooldown isn’t happening in a vacuum. Iran announced Thursday it will join the BRICS New Development Bank, as Tehran works to build economic alliances six months into its war with the U.S. and Israel. The geopolitical backdrop remains volatile — and energy prices, which have been the primary driver of disinflation this month, can reverse just as fast as they fell.
Meanwhile, the U.S. budget deficit surged in July to its highest level since March 2021 — a reminder that while inflation may be cooling, the fiscal backdrop that helped fuel it is anything but restrained. The Treasury will need to issue more debt, and that supply pressure has its own implications for long-term yields, regardless of what the Fed does with short-term rates.
Bottom line
Two days, two inflation reports, one message: price pressures are easing. The PPI’s flat July print confirms what the CPI suggested on Wednesday — the inflation surge that defined the first half of 2026 may have peaked. The Fed now has genuine cover to hold rates steady in September and wait for more data.
But the caution flags are real. Energy prices can turn on a dime, especially with an active war in the Middle East and Iran deepening its ties to the BRICS bloc. The budget deficit is growing, not shrinking. And at 4.7% year-over-year, headline PPI is still more than double the Fed’s comfort zone — even if the trajectory is finally pointing in the right direction.
What to watch next: the University of Michigan consumer sentiment survey drops Friday, offering a read on whether Americans are actually feeling the cooling in their wallets — or if the disconnect between economic data and lived experience persists.