Data released Thursday morning showed that the Producer Price Index (PPI) rose 0.9% in July.

Data released Thursday morning showed that the Producer Price Index (PPI) rose 0.9% in July, with core PPI rising by the same amount. The July reading is a significant pickup in inflation from the prior month, when both PPI and core PPI were flat, and significantly higher than consensus estimates of around 20 basis points. Prior to the PPI release, the fed futures market had been pricing in a better than 50% chance of three 25 basis point rate cuts by the end of the year; by the end of the day on Thursday, the odds of a third rate cut stood at 43%.

While the Fed is generally concerned more with consumer inflation, a pickup in producer inflation can signal a coming increase in consumer inflation. Policymakers are already on the lookout for tariff-driven inflation, so the jump in producer costs last month may be more concerning than it otherwise would be. Only time will tell whether the uptick in PPI ultimately leads to a rise in consumer inflation or if firms are forced to eat the additional costs without passing them along to consumers. But expectations for looser monetary policy may be toned down in the meantime.

At this point, the market seems to be digesting the data well, while the odds of a rate cut declined, fed futures are still pricing in a better than 90% chance of a 25 bps cut in September. Meanwhile, stocks finished the day flat with the S&P 500 (SPX) up 0.03% while the Nasdaq Composite (NASD) was down 0.01%.