Wholesale prices came in lighter than expected for July, a hopeful sign for consumer inflation and Federal Reserve rate cuts. That comes a day ahead of the CPI inflation report. The S&P 500 rose strongly following the PPI report.
The producer price index rose 0.1% vs. June. Core PPI, which excludes food and energy, was flat. Economists expected 0.2% increases for both.
Overall PPI inflation came in at 2.2% vs. a year earlier. That was below forecasts for 2.6% and June's upwardly revised 2.7%.
Core PPI inflation was 2.4%. Economists had expected no change from June's 3%.
The PPI report is important because many of its figures feed directly into the Federal Reserve's favorite inflation gauge, the core PCE price index.
CPI Inflation
On Wednesday, the Labor Department will release the consumer price index. Economists expect a modest 0.2% monthly gain for both the overall CPI in July and the core CPI, according to Econoday. That would keep the 12-month CPI inflation rate at 3%, while core inflation eases to 3.2%, the lowest rate since April 2021.
The core PCE price index gets about 70% of its inputs from the CPI.
Fed Rate Cut Odds
Heading into the PPI report, markets were largely split on the size of a September Fed rate cut, with 51.5% odds of a 50-basis-point cut and 48.5% for 25 basis points.
The odds for a half-point Fed rate cut ticked up to 54.5% after the PPI report.
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S&P 500 Rise
The S&P 500 jumped 1.7% Tuesday, moving clearly above the 21-day moving average and nearing the 50-day line. The benchmark index has been trending higher since the Aug. 5 global sell-off.
The 10-year Treasury yield fell six basis points to 3.85%.
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