Wholesale inflation much hotter than expected in July — throwing possible wrench into rate cut hopes

Wholesale prices rose at a much hotter-than-expected pace in July — throwing a possible wrench into Wall Street’s growing hopes for a rate cut next month.

The Producer Price Index, which measures final demand goods and services prices, jumped 0.9% in July – its biggest monthly gain since June 2022, the Bureau of Labor Statistics said Thursday.

That came in far above expectations for a 0.2% rise.

Over the past 12 months, the PPI increased 3.3% in July, coming in well above the Federal Reserve’s 2% goal – just after a tame 2.7% consumer inflation reading earlier this week had seemingly teed up a rate cut in September.

“Given how benign the CPI numbers were on Tuesday, this is a most unwelcome surprise to the upside and is likely to unwind some of the optimism of a ‘guaranteed’ rate cut next month,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note Thursday.

“The large spike in the Producer Price Index this morning shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet.”

Markets had priced in near-certain odds that the Fed would slash interest rates by a quarter point during its September meeting.

Those odds dipped slightly on Thursday following the PPI report’s release, according to CME FedWatch, which tracks 30-day Fed Funds futures prices.

Treasury Secretary Scott Bessent earlier this week even urged the Fed to issue a half-point cut next month.

“Powell has no intention of cutting rates by half a point,” Kenin Spivak, chairman and CEO at SMI Group, told The Post.

“He likely will use the PPI report to justify not doing so.”

The Dow Jones Industrial Average slipped 99 points, or 0.2%, while the S&P 500 slipped less than 0.1% and the Nasdaq ticked up 0.1%.

Core PPI – which excludes volatile food and energy prices – rose 0.9%, above expectations of a 0.3% increase. 

Excluding food, energy and trade services, the index rose 0.6% for its largest gain since March 2022.

Services inflation largely drove the reading, rising 1.1% in July.

Trade services margins rose 2% in July as President Trump’s trade war raged on.

About 30% of the increase in services came from a 3.8% jump in machinery and equipment wholesaling.

Portfolio management fees increased 5.8% and airline passenger services prices ticked up 1%.

“The fact that PPI was stronger-than-expected and CPI has been relatively soft suggests that businesses are eating much of the tariff costs instead of passing them onto the consumer,” Clark Geranen, chief market strategist at CalBay Investments, said in a note Thursday.

“Businesses may soon start to reverse course and start passing these costs to consumers.”

That would fulfill projections published earlier this week in a report from Goldman Sachs economists, who argued that US consumers will end up bearing the brunt of Trump’s tariffs.

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So far, consumers have absorbed just 22% of tariff costs, but this share will likely jump to 67% as businesses start to hike prices, the report said.

Trump fumed that Goldman Sachs boss David Solomon should go back to “being a DJ” and “get himself a new economist.”

Thursday’s producer price data puts Fed Chairman Jerome Powell – who Trump has pushed to slash rates – in a more complex spot.

“We had the hideous jobs report and that may be more of a worry than inflation at the given moment,” Ken Mahoney, CEO at Mahoney Asset Management, told The Post.

“This could be a one-off and there is no pattern here yet, but we will see how this plays out.”

He added that the running joke online seems to be that “whoever put the PPI out will lose their job today because the number was bad.”

Earlier this month, Trump abruptly fired BLS chief Erika McEntarfer after a dismal economic report revealed the labor market has been weakening for months.

The president said he plans to nominate E.J. Antoni, a harsh critic of the department and top economist at the conservative Heritage Foundation, to lead the bureau.