July 2025 Wholesale Price Inflation Hits Highest in 2 Years

July 2025 wholesale price inflation jumped sharply, which shows inflationary pressures still represent a threat to the US economy though there have been recent signs of softening consumer prices.

According to statistics published Thursday by the Bureau of Labor Statistics (BLS), the Producer Price Index (PPI) — a key measure of prices paid by suppliers for goods and services — increased 0.9% in September. That was well above the Dow Jones forecast of 0.2% and was the largest one-month advance since June 2022.

After removing volatile food and energy items, core PPI also rose 0.9%, nearly three times the predicted 0.3% rise. Removing food, energy and trade services, the index rose 0.6%, the highest in March 2022.

Year-over-year, headline PPI rose 3.3%, its fastest 12-month increase since February and significantly higher than the Federal Reserve's 2% inflation goal.

Services Inflation Fuels the Increase

July's increase came mostly from the services sector, which was up 1.1%, the biggest since March 2022. Trade services margins — the margin between wholesale prices paid and acquisition costs — increased by 2%, a change partly thanks to continued tariff policies by the administration of President Donald Trump.

Under that category, prices of machinery and equipment wholesaling went up by 3.8%, contributing approximately 30% to the total services inflation. Other significant increases were a 5.4% increase in portfolio management fee and a 1% increase in airline passenger service charges.

Market reaction was swift. U.S. stock futures declined on the news, and short-term Treasury yields increased as traders adjusted interest rate expectations.

PPI vs. CPI: A Diverging Picture

Although the prior-in-the-week CPI release was right on target to a large degree, the unexpected PPI print has stoked fears that inflationary pressures are percolating below the surface.

"The fact that PPI arrived stronger-than-forecast and CPI has been pretty modest does suggest that companies are absorbing a lot of the cost of tariffs themselves and not passing it along to consumers — at least so far," said Clark Geranen, chief market strategist at CalBay Investments. "That could be turned on its head if wholesale inflation keeps ratcheting along at this rate."

The PPI, while not as widely tracked as CPI, is closely watched by the policymakers since it offers an earlier warning of inflation trends that ultimately find their way to the customer. Both indicators inform the Commerce Department's Personal Consumption Expenditures (PCE) Price Index — the Fed's preferred inflation gauge — which is to be revised later this month.

Fed Rate Cut Prospects Reverse

Prior to Thursday's figures, markets were largely confident the Federal Reserve would reduce interest rates in September. Still, the CME Group's FedWatch tool indicated that while the chances of a September reduction fell somewhat following the report, the chances of three reductions in 2025 were significantly lowered by traders.

“The rise in the Producer Price Index shows that inflation is still working its way through the economy but hasn't yet made it to the consumer," said Chris Zaccarelli, chief investment officer at Northlight Asset Management. "It's a negative surprise that could temper the Fed's enthusiasm to reduce rates in March."

Political and Data Reliability Concerns

The high July reading arrives at a time of political upheaval over the BLS. President Trump replaced the previous commissioner of the BLS in August and signaled his intention to nominate Heritage Foundation economist E.J. Antoni. Antoni has been a consistent critic of the agency's methodology and has called for the suspension of the monthly jobs report until a guarantee of data accuracy can be provided.

Budget reductions and job layoffs among employees have already impacted the activities of the bureau. The July report on PPI was the first after the BLS trimmed around 350 categories from its detailed reporting of input prices — a move that has prompted economists to ask if the data is complete.

The Road Ahead

With July 2025 wholesale price inflation at a multi-year high, the Federal Reserve has a delicate balancing act, according to analysts. If wholesale price pressures begin to filter through to consumers, inflation would be likely to reaccelerate, making it more difficult for the Fed to stimulate the economy without overheating.

The spotlight now shifts to the next PCE report and the September Fed meeting, when the policymakers will need to decide whether to keep cutting or hold back in the face of continued price pressures.