Inflation “Off the Charts”: U.S. July Producer Prices Surge 0.9% Month-on-Month, 3.3% Year-on-Year

In July, the U.S. Producer Price Index (PPI) recorded its most pronounced monthly increase in three years, fueled by a notable spike in service-related costs. Figures published by the U.S. Bureau of Labor Statistics on Thursday revealed a 3.3% year-over-year rise in the headline PPI, up from June’s 2.3% and exceeding the 2.5% forecast. On a monthly basis, the index jumped 0.9%, marking its strongest performance since June 2022. This compares with no change in June and a projected 0.2% increase.

The core PPI—which excludes volatile food and energy prices—accelerated to a 3.7% annual rate, the highest since February. This surpassed both the expected 3.0% and June’s 2.6%. Month-over-month, core prices also climbed 0.9%, the largest gain since April 2022, far above the consensus of 0.2% and June’s flat reading.

Financial markets reacted swiftly. Futures for the Nasdaq-100 fell by approximately 0.4%, while the S&P 500 and Dow Jones futures declined by 0.35% and 0.3%, respectively. The U.S. Dollar Index rose 0.2% during intraday trading, and spot gold dipped around 0.3%. Traders scaled back expectations for a Federal Reserve rate cut in September.

Service prices surged 1.1% in July, the most significant monthly increase since March 2022. Wholesale and retail profit margins expanded by 2%, largely due to strength in machinery equipment distribution. Goods producer prices, excluding food and energy, rose by 0.4%.

Several components of the PPI feed directly into the Federal Reserve’s preferred inflation measure—the personal consumption expenditures (PCE) price index. Air passenger services, which had dropped 2.3% in June, rebounded with a 1% gain. Portfolio management fees rose sharply by 5.8% month-over-month, following a 2.1% increase in June. Charges for home healthcare and hospice services edged up 0.1%, slightly below the prior month’s 0.2%. Hospital outpatient services declined by 0.5%, reversing June’s 0.9% increase. Meanwhile, energy producer prices resumed their upward trend, reflecting higher crude oil costs.

The stronger-than-anticipated PPI data suggests that businesses are actively adjusting pricing strategies to absorb elevated input costs, including those stemming from tariffs. While Federal Reserve officials acknowledge the inflationary impact of import duties, opinions differ on whether these effects will be short-term or more persistent. Earlier in the week, consumer price index data and signs of labor market cooling had increased the likelihood of a rate cut in September. However, the robust PPI figures have led traders to reassess that outlook.