The “Inflation Is Dead” Party Just Got Raided By the PPI (All Eyes On J-Poww)

I’m not mad, I’m disappointed…

Wednesday’s CPI print had traders high-fiving like they’d just received access to the money printer. Rate cut odds for September spiked. Twitter was declaring “Mission Accomplished” on inflation. And then yesterday happened. 

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The Producer Price Index… a.k.a, the CPI’s blue-collar cousin who wears white Oakleys and drives a lifted F-250…rolled in with a 0.9% monthly jump for July. Economists were expecting 0.2%. No bueno. Core PPI (excluding food and energy) also clocked in at 0.9% vs. a 0.3% forecast, its biggest monthly surge since March 2022. On a 12-month basis, headline PPI is now up 3.3%. The Fed’s target is 2%. Meaning, if this were a ball game, Powell’s still in the dugout, but he’s already on the phone to the bullpen… and not in a good way. 

Of course, services inflation did the heavy lifting, up 1.1%... also the biggest since March 2022. Trade services margins spiked 2%, machinery and equipment wholesaling rose 3.8%, portfolio management fees ballooned 5.4%, and airlines quietly slipped in a 1% bump. And, yes, tariffs are now part of the inflation story. Thirty percent of that services pop came from machinery/equipment wholesaling… a segment that’s been riding the wave of Trump’s latest import taxes.

Naturally, futures dipped, shorter-term Treasury yields popped, and the market-implied odds of a September rate cut slid a little…though they’re still north of 90%, according to CME’s FedWatch tool. The bigger hit was to the “three cuts in 205” fantasy. Those odds got shaved down hard. This is also a reminder: PPI feeds into the PCE index, the Fed’s preferred inflation gauge. So even if CPI looked tame earlier this week, the pipeline pressures are building. And eventually, those costs will bleed into the consumer side… unless companies keep eating them. (The White House is already spinning it that way.)

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Also, worth noting is that this was the first PPI release since the BLS axed 350 cost categories because of budget cuts. Trump recently fired the BLS commissioner and plans to slot in Heritage Foundation economist E.J. Antoni, who openly questioned the agency’s data quality. So while the numbers are ugly, it’s also coming from a stats bureau that’s in the middle of a re-staffing and getting actual competent bean counters on board. 

So yeah… PPI was definitely a the c*k block when it came to CPI’s hype, as it just threw a wrench into the “inflation is dead” narrative. For now though, markets are somewhat shrugging it off… betting the Fed still cuts in September. But if August’s data even hints at a repeat performance, the doves are going to have a much harder time keeping the party going. Meaning, keep your eyes on J-Poww and place your bets accordingly. Until next time, friends…

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.