US producer prices unchanged in July, dimming rate hike odds

Wholesale prices in the US went absolutely nowhere in July, and that’s exactly the kind of news markets wanted to hear. The Producer Price Index for final demand was unchanged on a monthly basis, the Bureau of Labor Statistics reported on August 13, coming in below the 0.1% to 0.2% increase that economists had penciled in.

The flat reading followed a revised 0.1% decline in June, which itself was the largest monthly drop in 14 months.

What drove the flatline

Prices for final demand goods fell 0.7%, dragged lower by a notable decline in energy costs. But services weren’t playing along with the disinflation narrative. Service prices ticked up 0.2%, and construction costs surged 2.2%.

The year-over-year picture told a more encouraging story. Annual PPI came in at 4.7%, down from 5.5% in June and below the roughly 4.9% that forecasters expected. That’s the lowest annual rate since March, and it extends a broader trend of easing wholesale inflation that’s been developing through 2026.

Core measures, which strip out the volatile food and energy categories, showed a similar pattern of moderation.

Markets recalibrate the Fed playbook

Before the data dropped, traders had been assigning roughly 40.6% odds to a rate hike at the September 15-16 meeting. After the report, those odds fell to 32.4%.

The probability of the Fed holding the federal funds rate at its current 3.50% to 3.75% range climbed to approximately 67.6%.

The labor market holds its ground

Jobless claims saw a modest increase but remained at levels consistent with a resilient employment picture.

The PPI report also sets the stage for the consumer price index release, which investors will scrutinize for confirmation that wholesale price moderation is flowing through to the retail level. Producer prices measure what businesses pay before those costs get passed along to consumers. A flat PPI doesn’t guarantee a benign CPI reading, but it removes one source of upward pressure.