There was more positive news as the Producer Price Index (PPI), which measures inflation on the wholesale level, was also lower than expected in July. Headline PPI rose 0.1% last month, with the annual reading falling from 2.7% all the way down to 2.2%. Core PPI, which strips out volatile food and energy prices, was flat for the month and the year-over-year reading also saw a big drop from 3% to 2.4%.
What’s the bottom line? Wholesale inflation was much cooler than economists had forecasted, and the Bond market reacted favorably when the data was released last Tuesday. This positive trajectory lower is also important because some of the PPI components are factored into another important consumer inflation measure called Personal Consumption Expenditures (PCE), which is the Fed’s favored measure. This bodes well for a friendly PCE report when that data is released on August 30.