US July PPI flat at 0.0%, strengthening Fed pause case

US producer prices were unchanged in July, a cooler-than-expected reading that strengthens the case for a Fed pause in September.

US producer prices were flat in July, missing the 0.2 percent consensus as falling energy costs offset services gains, strengthening the case for the Federal Reserve to pause in September.

"Strong liquidity, together with a Fed pause, should continue to support risky assets," said Mohit Kumar, economist at Jefferies Financial Group, who noted that AI infrastructure capital expenditure shows no signs of slowing.

The headline Producer Price Index for final demand was unchanged month over month, following June's 0.3 percent decline, the U.S. Bureau of Labor Statistics reported Thursday. Annual wholesale inflation eased to 4.7 percent from 5.5 percent, below the 4.9 percent consensus. Core PPI, excluding food and energy, rose 0.2 percent in July, below the 0.3 percent forecast, with the annual rate at 4.2 percent.

The cooler producer inflation reading follows Wednesday's consumer price index, which showed annual CPI easing to 3.4 percent from 3.5 percent. Futures markets now price a 65 percent chance the Fed holds rates steady in September, up from 50 percent before the CPI release. S&P 500 futures rose 0.2 percent in early trading, with the index sitting 0.95 percent below its all-time high of 7,517.12.

The disinflationary impulse is concentrated in goods. Final demand goods fell 0.7 percent in July, following a 1.4 percent decline in June, as energy prices dropped 3.1 percent and foods declined 0.9 percent. Gasoline prices fell 5.7 percent, contributing to more than half of the decrease in final demand goods. Services rose 0.2 percent, driven by a 6.5 percent jump in portfolio management prices, while transportation and warehousing services fell 1.8 percent.

The data extends a broader trend of easing price pressures across major economies. Japan's July producer inflation slowed to 7.2 percent year over year from 7.3 percent, while the UK reported mixed signals with June GDP growing 0.3 percent month over month against a forecast for a 0.1 percent contraction.

Fed Path and Market Pricing

The flat PPI reading reinforces the market's reassessment of the Fed's policy trajectory. Traders now see a 65 percent probability the central bank holds rates steady in September, up from 50 percent before Wednesday's CPI data. The three-month trajectory — a 0.5 percent rise in May, a 0.3 percent decline in June and flat in July — shows producer prices decelerating steadily, a pattern that typically precedes softer consumer inflation in subsequent months.

Gold held near $4,387 an ounce, down 0.47 percent on the day, as the dollar index climbed to a two-week peak around 100.01. Oil hovered near $88 a barrel, with falling energy prices providing a tailwind for the disinflation narrative.

The next test comes from the labor market. Initial jobless claims, due at 8:30 a.m. ET, are expected to rise to 202,000 from 199,000. Fed officials Beth Hammack and Thomas Barkin are scheduled to speak later Thursday, offering the first official commentary on the inflation data.

For equities, the stakes are clear. The S&P 500 sits 71.40 points below its record close, and a sustained easing in inflation could provide the trigger to close that gap. Citi strategists maintain a year-end target of 8,100 for the index, implying roughly 8.8 percent upside from current levels, while Morgan Stanley projects 8,300 over the next twelve months.

This article is for informational purposes only and does not constitute investment advice.