Wholesale prices in July were lower than anticipated, signaling a positive outlook for consumer inflation and potential Federal Reserve rate cuts. This news comes just ahead of the upcoming Consumer Price Index (CPI) report. After releasing the Producer Price Index (PPI) data, S&P 500 futures saw further gains.
The PPI increased by 0.1% compared to June, while the Core PPI, which excludes food and energy, remained flat. Economists had expected a 0.2% rise in both categories.
Year-over-year, overall PPI inflation was 2.2%, below the forecast of 2.6% and June’s revised figure of 2.7%. Core PPI inflation stood at 2.4%, lower than the anticipated 3%.
The PPI report is closely watched, as many of its components contribute to the Federal Reserve’s preferred inflation measure, the Core Personal Consumption Expenditures (PCE) price index.
On Wednesday, the Labor Department is set to release the CPI report. Economists predict a modest 0.2% monthly increase for both the overall CPI and Core CPI in July. This would maintain the annual CPI inflation rate at 3% and reduce core inflation to 3.2%, the lowest level since April 2021.
Before the PPI report, market expectations for a September rate cut by the Federal Reserve were nearly evenly split, with a slight majority favoring a 50-basis-point cut. Following the report, the odds for a half-point rate cut increased to about 54%.
The S&P 500 rose by 0.8% on Tuesday morning, nearing its 21-day moving average. Despite the recent upward trend, the index remains below its 50-day moving average. Additionally, the 10-year Treasury yield fell by six basis points to 3.86%.
