U.S. July PPI Flat as Core Pressures Firm; September Fed Hike Pricing Eases to ~40%

BlockBeats reports that U.S. producer inflation cooled in July, with the headline PPI rising 4.7% year over year—the lowest since March—below the 4.9% consensus and down sharply from 5.5% previously. On a monthly basis, PPI was unchanged, missing expectations for a 0.2% increase. Core PPI rose 4.2% from a year earlier, in line with forecasts. The monthly core reading came in at 0.2%, under expectations. Labor-market data also softened at the margin: initial jobless claims were 209,000, the highest since the week of July 11, and above the 202,000 expected. Energy and food were the main drivers of the headline cooling. Energy prices fell 3.1% month over month, while food prices declined 0.9%. At the same time, underlying pressures showed signs of persistence: core final-demand PPI excluding food, energy and trade services accelerated to 0.4% month over month from 0.1%. The data echo the past two months’ more moderate inflation signals, following July’s year-over-year CPI easing to 3.4% from 3.5%. Market pricing for a September rate increase has cooled noticeably, with traders now assigning roughly a 40% probability. Fed officials, though, are still striking a cautious-to-hawkish tone. Cleveland Fed President Harker said rates still need to rise, arguing policy "is not restrictive" and that inflation remains broad-based, adding the Fed must be accountable to the inflation data. Richmond Fed President Barkin said a hike remains an open question: inflation could ease as tariff- and oil-related shocks fade, but pressures may also prove entrenched, potentially requiring weaker demand or higher rates to bring inflation back to target. Overall, the message is closer to "wait and see" than a pivot to easing. August inflation and employment releases, along with oil price trends, are expected to be key inputs into the September decision.