| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| PPI-FD - M/M | 0.2% | 0.1% to 0.4% | 0.9% | 0.0% |
| PPI-FD - Y/Y | 2.6% | 2.5% to 2.6% | 3.3% | 2.3% |
| Ex-Food & Energy - M/M | 0.2% | 0.1% to 0.4% | 0.9% | 0.0% |
| Ex-Food & Energy - Y/Y | 3.0% | 2.7% to 3.0% | 3.7% | 2.6% |
| Ex-Food, Energy & Trade Services - M/M | 0.6% | 0.0% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 2.8% | 2.5% | ||
| PPI-FD Goods - M/M change | 0.7% | 0.3% | ||
| PPI-FD Goods - Y/Y change | 1.9% | 1.7% | ||
| PPI-FD Services - M/M change | 1.1% | -0.1% | ||
| PPI-FD Services - Y/Y change | 4.0% | 2.7% |
Highlights
The July PPI data came in very hot, pointing to consumer price hikes coming down the line as higher tariffs feed through. This builds on evidence in the prior month's report of a stealthy rise in costs from the punitive customs duties.
Margins for final demand trade services (a measure of the changes in margins received by wholesalers and retailers) jumped 2.0 percent, and saw a 6.9 percent spike compared to a year ago, as more costs related to the tariffs were passed on to wholesalers. Even excluding trade services, wholesale costs were still up 0.7 percent last month and jumped 2.7 percent from a year ago.
It is too soon to say, however, if this is a one-off or sustained spike in prices due to tariffs. The Federal Reserve will have the benefit of the August CPI and PPI reports, as well as the July PCE data before its FOMC meeting on September 16.
U.S. wholesale price inflation as measured by the Producer Price Index for final demand jumped 0.9 percent in July, following no change in June, and thrashing expectations for a 0.2 percent rise in the Econoday survey of forecasters. Final demand prices rose 0.4 percent in May and saw a 0.2 percent decline in April.
Compared to July 2024, final demand PPI rose 3.3 percent, compared to a 2.3 percent increase for the 12 months ended in June. Expectations were for a 2.6 percent rise.
Prices for final demand goods saw a 0.7 percent increase following June's 0.3 percent rise. It is worth noting that wholesale food prices (+1.4 percent) drove the increase. Goods prices excluding food and energy rose 0.4 percent. Prices for final demand services saw a 1.1 percent jump in July, after a 0.1 percent decline in June. The services index excluding trade, transportation, and warehousing and for final demand transportation and warehousing services increased 0.7 percent and 1.0 percent, respectively.
July final demand prices excluding food and energy came in up 0.9 percent, following no change in June, and are up 3.7 percent from a year ago after a 2.6 percent rise in June.
Food prices rose 1.4 percent after a 0.1 percent uptick in June, and jumped 4.2 percent compared to July 2024. Energy prices rose 0.9 percent in July after a 0.9 percent jump in June, but are down 3.2 percent when compared to July 2024 (after prices rose 2.6 percent on an annual basis in June).
Final demand prices excluding foods, energy, and trade services saw a 0.6 percent jump in July, following a flat reading in June, and +0.1 percent in May. For the 12 months ended in July, prices for final demand less foods, energy, and trade services rose 2.8 percent, compared to a 2.5 percent increase on an annual basis in June.
Margins for final demand trade services (a measure of the changes in margins received by wholesalers and retailers) jumped 2.0 percent, and saw a 6.9 percent spike compared to a year ago, as more costs related to the tariffs were passed on to wholesalers. Even excluding trade services, wholesale costs were still up 0.7 percent last month and jumped 2.7 percent from a year ago.
It is too soon to say, however, if this is a one-off or sustained spike in prices due to tariffs. The Federal Reserve will have the benefit of the August CPI and PPI reports, as well as the July PCE data before its FOMC meeting on September 16.
U.S. wholesale price inflation as measured by the Producer Price Index for final demand jumped 0.9 percent in July, following no change in June, and thrashing expectations for a 0.2 percent rise in the Econoday survey of forecasters. Final demand prices rose 0.4 percent in May and saw a 0.2 percent decline in April.
Compared to July 2024, final demand PPI rose 3.3 percent, compared to a 2.3 percent increase for the 12 months ended in June. Expectations were for a 2.6 percent rise.
Prices for final demand goods saw a 0.7 percent increase following June's 0.3 percent rise. It is worth noting that wholesale food prices (+1.4 percent) drove the increase. Goods prices excluding food and energy rose 0.4 percent. Prices for final demand services saw a 1.1 percent jump in July, after a 0.1 percent decline in June. The services index excluding trade, transportation, and warehousing and for final demand transportation and warehousing services increased 0.7 percent and 1.0 percent, respectively.
July final demand prices excluding food and energy came in up 0.9 percent, following no change in June, and are up 3.7 percent from a year ago after a 2.6 percent rise in June.
Food prices rose 1.4 percent after a 0.1 percent uptick in June, and jumped 4.2 percent compared to July 2024. Energy prices rose 0.9 percent in July after a 0.9 percent jump in June, but are down 3.2 percent when compared to July 2024 (after prices rose 2.6 percent on an annual basis in June).
Final demand prices excluding foods, energy, and trade services saw a 0.6 percent jump in July, following a flat reading in June, and +0.1 percent in May. For the 12 months ended in July, prices for final demand less foods, energy, and trade services rose 2.8 percent, compared to a 2.5 percent increase on an annual basis in June.
Market Consensus Before Announcement
The consensus sees PPI-FD up 0.2 percent on month in July and up 2.6 percent on year after no change on month in June and a 2.3 percent increase on year.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
