Core and Supercore Measures Flash Warning Signs
The inflation beat wasn’t limited to headline data. Core PPI, excluding food and energy, also rose 0.9%, tripling consensus expectations. The supercore measure—which strips out food, energy, and trade—gained 0.6%, marking the sharpest monthly rise in 28 months.
These figures indicate a reacceleration in underlying price pressures, particularly troubling given that the Federal Reserve watches supercore inflation as a proxy for stickier service-sector pricing.
Services Inflation Leads the Surge
Much of the July inflation came from services, with final demand services prices climbing 1.1%, also the strongest monthly rise since March 2022. Trade margins rose 2.0%, led by machinery and equipment wholesaling, while traveler accommodation and securities brokerage services added to the momentum.
This broad-based rise in service costs could signal more sustained inflation, making it harder for policymakers to justify easing financial conditions.
Policy Implications: September Cut Now Less Likely
With PPI readings blowing past forecasts across all tiers—headline, core, and supercore—the Federal Reserve may hesitate to ease rates at its upcoming meeting. While one inflation report doesn’t set policy, this print runs counter to recent expectations for a September cut.
Markets may now recalibrate toward a “higher-for-longer” stance, particularly if next week’s CPI or employment reports show similar strength.