The July Producer Price Index (PPI) posted a 0.9% monthly increase—the largest in over three years—and annual wholesale inflation rose to 3.3%. Core PPI, excluding food, energy, and trade services, also increased 0.9% month-over-month and 3.7% year-over-year.
Services drove most of the gain, led by
The latest data is in line with July’s CPI report showing consumer inflation rising, signaling that tariff-related cost pressures are now hitting supply chains. Until recently, companies absorbed higher import costs to protect demand. Now, with margins squeezed and pre-tariff inventories running low, more costs are being passed to consumers. This suggests inflation could remain high for longer, complicating the Federal Reserve’s plans for rate cuts.
Markets reacted with a dip in equities and higher Treasury yields as traders reduced bets on aggressive rate cuts. A 25 bp cut in September remains likely, supported by weakening labor data, but chances of bigger or faster cuts have lessened. With Fed Chair Powell speaking at Jackson Hole this month, the bank will likely maintain its data-dependent approach, balancing growth with the risk of easing too soon amid inflation.
For U.S. equities, the near-term outlook points to heightened volatility and possible sector rotation. Energy and industrial companies with pricing power may benefit, while consumer discretionary and staples face potential margin compression if cost pass-through is limited by weak demand. High-quality companies with strong balance sheets and resilient free cash flow are better positioned to navigate this environment. Investors should closely watch August PCE data—several PPI components feed directly into this measure—as it will heavily influence the Fed’s tone and pace of cuts heading into year-end. For now, targeted positioning, emphasis on pricing power, and disciplined risk management are essential as markets navigate a more complex policy and inflation backdrop.