The dual decline of energy and food prices has led to a narrowing of the year-on-year increase in the U.S. PPI for July to 4.7%, echoing the trend of cooling in the CPI.

Affected by further declines in energy and food costs, U.S. wholesale inflation in July grew less than market expectations year-on-year, continuing its downward trend. Data released by the U.S. Bureau of Labor Statistics on Thursday showed that the Producer Price Index (PPI) remained flat month-on-month in July, below economists' previous expectations of a 0.2% increase; year-on-year it rose by 4.7%, significantly down from June's 5.5% increase. The month-on-month PPI data for June was also revised from a previously reported decline of 0.3% to a decline of 0.1%, indicating that final demand prices have remained unchanged for two consecutive months. Excluding food and energy, the core PPI rose by 0.2% month-on-month, lower than the market expectation of a 0.3% increase; year-on-year it increased by 4.2%. If trade services are further excluded, the core PPI rose by 0.4% month-on-month. Chris Rupkey, chief economist at FwdBonds, stated, "Overall, the pipeline pressures at the early stages of production have not increased the inflation risk faced by consumers. The PPI final demand prices have not increased for the second consecutive month, which is good news for the cost-of-living crisis faced by Americans." From a breakdown of data, commodity prices in July fell by 0.7% month-on-month, with energy prices dropping by 3.1%, marking a second consecutive month of decline, including a 5.7% drop in gasoline prices; food prices decreased by 0.9%, the largest monthly decline since the beginning of the year. However, core commodity prices excluding food and energy rose slightly by 0.1% month-on-month. Service prices increased by 0.2% month-on-month, with portfolio management fees surging by 6.5%. Analysts noted that this segment often experiences significant volatility due to reporting requirements at the beginning of the quarter. Transport and storage costs decreased by 1.8% month-on-month, the largest drop since April 2023, further indicating that high fuel costs are having a diminishing impact on overall prices. Meanwhile, the indicator reflecting early-stage inflation pressures in productionthe prices of intermediate demand processing products excluding food and energyrecorded its smallest month-on-month increase since November of last year. However, the report also highlighted continued cost pressures from data centers. Prices of electronic components and accessories rose by 28% year-on-year in July, nearing historical highs; the price of computers and computer equipment rose by 9.8% year-on-year, marking the largest increase on record. Some components of the PPI are included in the inflation measure favored by the Federal Reservethe Personal Consumption Expenditures (PCE) Price Indextherefore attracting additional market attention. In July, the performance of these components was mixed: portfolio management fees saw their largest increase in over a year, and outpatient hospital expenses also surged; however, fees for doctor services and hospital inpatient care were relatively moderate; airline ticket prices experienced the largest drop since early last year. The U.S. Bureau of Economic Analysis is set to release July PCE price data on August 26. Following the PPI data release, economists from Citigroup, Morgan Stanley, and Jefferies expected the core PCE price index to rise by 0.2% month-on-month in July. Additionally, the profit margins for wholesale and retail trade services saw a slight decline in July after a jump in June. This segment is closely monitored as it may reveal the extent to which businesses absorb tariff-related costs or pass them on to consumers. Although the U.S. Supreme Court earlier this year overturned several tariffs, the Trump administration is still seeking other ways to impose tariffs on imported goods. The White House recently announced a tariff of at least 10% on imports from most major trading partners. Signals of cooling inflation are strengthening, but risks in the Middle East remain. This PPI report follows the earlier release of consumer price index (CPI) data. Data released on Wednesday showed that the CPI increased by only 0.1% month-on-month in July, with declining energy prices helping to ease price pressures. However, the overall year-on-year CPI increase remains at 3.4%, far above the Federal Reserve's 2% target. The core CPI rose by 0.2% month-on-month and increased by 2.5% year-on-year, returning to pre-war levels. Overall, after inflation surged earlier this year due to the war with Iran and tariffs from the Trump administration, price increases are starting to subside. However, recent tensions in the Middle East have rekindled concerns in the market that inflation may become stickier. After the PPI data was released, U.S. stock index futures rose, and U.S. Treasury yields fell. Traders further reduced their bets on a Federal Reserve rate hike in September. Recent market expectations have shifted, now leaning towards a rate increase by the Fed in October or December, whereas previously the market had anticipated action during the next Federal Open Market Committee (FOMC) meeting on September 15-16. Before the mid-September policy meeting, Federal Reserve officials will also receive additional data on consumer and producer prices as well as another labor market report. Currently, decision-makers need to weigh the ongoing inflation pressures against recent slower job growth. Several key Federal Reserve officials have been advocating for rate hikes to bring inflation back to the 2% target. Another government report released on the same day showed that for the week ending August 8, the number of initial unemployment claims in the U.S. rose to 209,000, an increase of 9,000 from the previous week, exceeding the market expectation of 204,000, but still remaining at a low level. Data released last week indicated that job growth was weaker than previously estimated.