Producer Price Index Surges 0.8% in July, Exceeds Expectations, Reigniting Inflation Concerns

The U.S. economy faces renewed concerns about inflation as the Producer Price Index (PPI) for final demand has shown an unexpected surge in July, outpacing market expectations.

Producer Inflation Rebounds

The PPI recorded a 0.8% annual rise, bouncing back from a revised higher 0.2% in June and surpassing the projected 0.7% increase, the Bureau of Labor Statistics said Friday. It marks the first increase in the annual producer inflation rate following 12 straight months of declines.

On a monthly basis, the PPI's pace of increase also quickened, growing by 0.3% in July, a notable increase from the revised flat reading seen in the previous month.

The core PPI index, which excludes the more volatile components of food and energy, maintained a year-on-year increase of 2.4% for July, matching the previous month's figure but exceeding market expectations, which were at 2.3%.

Similarly, the core PPI's monthly increase edged up to 0.3%, compared to the revised 0.1% drop seen in June.

The index for final demand services soared 0.5% month-on-month in July, marking the highest increase since August 2022.

The rise in the PPI index for final demand goods advanced at a 0.1% monthly pace, driven by the index for final demand foods, which rose 0.5%.

This higher-than-expected increase in the PPI inflation comes just a day after the Consumer Price Index (CPI) report for July, which indicated a moderate increase in the headline annual inflation rate from 3% to 3.2%, albeit below the predicted 3.3%.

Chart: PPI Inflation Rises To 0.8% YoY In July, Snapping 12-Month Losing Streak

Market Reactions: Stocks Tumble, Dollar Jumps As Investors Revise Fed Outlook

Futures on the S&P 500 and Nasdaq 100 tumbled, 0.5% and 0.3%, respectively, following the release of the higher-than-expected PPI in July, as traders slightly revised their expectations on Fed’s interest-rate outlook.

The U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rose 0.2%, driven by an increase in Treasury yields, with the 10-year jumping to 4.14%. The greenback is on track to close its fourth straight week of gains.