Stocks dip after hottest July producer price growth since 2022

ETFs that track major US stock indexes, such as the SPDR S&P 500 ETF, Invesco QQQ Trust, and iShares Russell 2000 ETF, slumped ahead of market open after July’s reading of the producer price index came in much hotter than anticipated.

The PPI and core PPI (ex-energy and food) each jumped 0.9% month on month, while both had been expected to bump up just 0.2%.

Financial services inflation was a big driver of the rise, especially portfolio management. This typically tracks the direction of the stock market and serves as an input into PCE inflation, the Federal Reserve’s preferred gauge of price pressures.

“The broader tone in the data seems hot enough it’s hard to shrug off,” Peter Williams, an economist at 22V Research, wrote. “PPI services ex-trade was hotter than all but four months after covid hit; overall core final demand PPI was the hottest since early 2022.”

That being said, this negative surprise on producer price growth isn’t upending expectations for what the Federal Reserve will do in September — that is, cut rates by 25 basis points. About 24 basis points of easing is priced in, little changed from the knee-jerk reaction to Tuesday’s CPI inflation data.

It’s not often you see producer price index data prompt a noteworthy reaction from the stock market. But it’s also not often that we’re wrestling over how an economy will digest a significant increase in tariff rates.

(Tariffs themselves are excluded from PPI data, but the pricing changes that these domestic producers make in response to tariffs do make their way into the data.)