July PPI Hides Surging Core Inflation Ahead of Crucial September Rate Decision

The July producer price index (PPI) for the US was flat at 0.0% on a seasonally adjusted basis, but this masked a significant surge in core PPI to 0.4%, quadrupling June's near-flat pace.

This acceleration is driven by a 6.5% increase in portfolio management fees, which will feed directly into the August 26 core Personal Consumption Expenditures (PCE) reading. The PCE index is the Federal Reserve's preferred inflation gauge.

The BLS reported that energy prices fell 3.1%, largely driven by a 5.7% decline in gasoline prices. Food prices also decreased by 0.9%. However, core PPI, which excludes food and energy prices, rose 0.4%, with a 12-month rate of 4.7%

This mixed signal from the PPI data may reinforce the 'no need to hike rates' narrative, but it does not resolve the September debate on interest rate hikes. The Federal Open Market Committee held its federal funds rate steady at 3.50%-3.75% in July, with three regional Fed presidents dissenting for an immediate hike.