US PPI Cools More Than Expected, Easing Pressure on Fed

Summary

The July PPI report was softer than expected on the headline, with flat final demand and lower year-over-year inflation, though core-core PPI rose more than forecast. Jobless claims increased modestly while continuing claims declined. Markets saw equity futures fade and Treasury yields edge lower as the data was interpreted as broadly consistent with a Fed on hold, but with some underlying inflation pressures still present.

• July final demand PPI came in flat versus expectations for a rise.
• Headline PPI year-over-year fell to 4.7% from 5.5%.
• Core-core PPI ex food, energy, and trade rose 0.4% month-over-month, above forecasts.
• Initial jobless claims rose to 209,000, while continuing claims decreased.
• S&P 500 and Nasdaq futures faded after the data.
• Treasury yields were lower by about two basis points across the curve.
• Anchors noted the core-core PPI upside surprise tempers the disinflation signal.
• Market-implied probability of a September Fed rate hike was around 40%.