US producer prices rose more than expected in July, underscoring persistent inflationary pressures and adding a new dimension to market expectations ahead of upcoming jobs data and the Federal Reserve’s next policy decision.
The Labor Department reported a 0.9% increase in the Producer Price Index (PPI) last month, reflecting broad-based gains, including sharp rises in equipment selling margins and a nearly 40% jump in vegetable prices.
Core PPI, which strips out volatile food and energy costs, also exceeded forecasts.
“Tariffs are causing businesses to raise the prices they charge each other, which will show up in higher consumer prices over time,” said Bill Adams, chief economist at Comerica Bank.
“The report is another pebble on the scale against a rate cut at the Fed’s September meeting.”
Adams noted, however, that the Fed’s upcoming decision would likely hinge more on jobs data than on this inflation report. “In addition to the August payrolls report’s release on September 5, the BLS will announce a benchmark revision September 9 that will probably revise down job growth in 2024 and early 2025. Financial markets price in high odds of a rate cut at the Fed’s September decision,” he said.
“The chances of them holding rates steady will be higher if the unemployment rate is stable or lower at the next release on September 5.”
The July PPI reading follows mixed labor market signals. Payroll growth slowed to a three-month pace of 35,000 jobs in July, while the unemployment rate has held roughly flat over the past year.
Other analysts echoed the view that inflation pressures are evident but did not signal an immediate threat to broader disinflation trends.
“Producer prices rose more than expected in July, but the bigger picture remains balanced,” said Gina Bolvin, president of Bolvin Wealth Management Group. “The 0.9% jump in PPI reflects lingering cost pressures—some driven by tariffs—but core inflation trends remain contained. It’s a reminder that the path to lower rates may not be linear, but the broader disinflationary trend is still intact.”
Chris Zaccarelli, chief investment officer for Northlight Asset Management, described the PPI spike as an unexpected inflation signal. “Given how benign the CPI numbers were on Tuesday, this is a most unwelcome surprise to the upside and is likely to unwind some of the optimism of a ‘guaranteed’ rate cut next month,” he said.
Zaccarelli added that market reactions will be closely watched. “It will be extremely telling to see how the markets react to these numbers today – the knee-jerk reaction at the open will likely be to trade lower, so if we finish the day flat or even higher then that’s a strong indication that the market doesn’t need rate cuts to keep moving higher, but if the reaction is extremely negative (-1% or worse on the day), then it’s an indication that this bull market isn’t as robust as many have been claiming.”