US PPI Cools, but the Core Number Tells a More Complicated Story

The US Producer Price Index delivered the result markets wanted—but not without an important warning.

Headline PPI was unchanged month-on-month in July, while its annual growth rate slowed to 4.7% from 5.5% in June. Falling energy and food prices helped offset another increase in service-sector costs.

That softer headline strengthened the argument that US inflation is gradually cooling. It also helped push Wall Street to a record high and reduced the market-implied probability of a September Federal Reserve rate increase to around 35%.

However, the underlying data were less comforting. Prices excluding food, energy and trade services rose 0.4% during the month and 4.7% from a year earlier.

The message from the US PPI July 2026 report is therefore mixed: headline inflation is improving, but the pressures beneath it remain too strong for the Fed to declare victory.

Energy Prices Did Most of the Work

The Producer Price Index measures changes in the prices received by domestic producers for their goods and services. It provides a view of inflation earlier in the supply chain, before some costs are passed on to consumers.

According to the US Bureau of Labor Statistics, final-demand prices were unchanged in July after edging down 0.1% in June and rising 0.5% in May.

Goods prices fell 0.7%, marking a second consecutive monthly decline. Energy prices dropped 3.1%, while food prices decreased 0.9%.

Gasoline played a particularly large role. Its producer price fell 5.7%, accounting for more than half of the decline in final-demand goods. Prices for diesel, jet fuel, vegetables and some industrial materials also moved lower.

This is good news for the inflation outlook. Lower energy prices can reduce transportation, manufacturing and distribution costs across the economy.

The complication is that energy prices are volatile. A decline in one month can be reversed quickly—especially while the Middle East remains unstable and crude oil shipments through the Strait of Hormuz remain exposed to geopolitical risk.

Headline inflation supported by falling fuel prices is still helpful. It is simply less convincing than broad-based disinflation across goods and services.

Core PPI Shows Inflation Is Still Sticky

The reports more cautious signal came from the measure excluding food, energy and trade services. This index increased 0.4% month-on-month after rising only 0.1% in June. It was also 4.7% higher than a year earlier.

This measure is designed to remove several of the most volatile PPI components. It is not identical to every market definition of “core PPI”, so investors should check which measure a report is referencing rather than comparing figures without context.

Services remain a key source of pressure. Final-demand service prices increased 0.2% in July, while services excluding trade, transportation and warehousing rose 0.6%.

Portfolio-management prices jumped 6.5%. Prices also increased in several retail, wholesale and professional-service categories. Meanwhile, final-demand construction costs rose 2.2%.

These increases matter because service inflation can prove more persistent than changes in energy or food prices. Services are often influenced by wages, rents, financing costs and demand conditions that take longer to cool.

The bullish interpretation is that headline producer inflation is moving decisively lower. The more cautious reading is that much of the improvement came from volatile goods and energy components, while underlying services remain expensive.

Markets Focused on the Good News

Investors initially placed more weight on the softer headline.

The S&P 500 gained 0.7% on August 13 and closed at a record 7,798.99. The Nasdaq Composite advanced 0.8%, while the Dow Jones Industrial Average rose 0.1%.

US Treasury yields also declined. The 10-year yield fell to 4.65% from 4.68% a day earlier, reducing pressure on rate-sensitive assets.

Traders lowered the estimated probability of a September Fed hike to approximately 35%, compared with about 50% two days earlier. The reaction reflected a combination of softer CPI and PPI reports rather than the producer-price data alone.

The lower probability does not mean a rate increase has been ruled out. It means the market currently views a hold as the more likely outcome.

That distinction is important. Probability estimates can change rapidly following new inflation data, labour-market figures or comments from Fed officials.

The Fed Still Has Reasons to Remain Cautious

At its July meeting, the Federal Reserve kept the federal funds rate target at 3.50% to 3.75%. Three officials preferred to raise rates by 25 basis points, revealing a meaningful split within the central bank.

The Fed also continued to describe inflation as elevated.

Julys softer CPI and headline PPI reduce the urgency for further tightening, but the stronger underlying PPI measure gives hawkish officials evidence that inflation has not been fully contained.

The Fed will also be more interested in the direction of inflation over several months than in one favourable headline. Policymakers will want confirmation that service-sector and underlying price pressures are cooling consistently.

For now, the PPI report supports a September pause—but does not guarantee one.

What the US PPI Means for the Ringgit

The immediate transmission channel for Malaysia is the interest-rate outlook.

When investors expect higher US rates, Treasury yields and the dollar often become more attractive. This can place pressure on emerging-market currencies such as the ringgit.

When Fed tightening expectations decline, the opposite can occur. Lower US yields may weaken the dollar, improve demand for Asian assets and give the ringgit more room to appreciate.

The ringgit opened slightly stronger against the greenback on August 14, rising to approximately 4.0835/0895 from the previous close of 4.0850/0890. It also strengthened against several major and regional currencies.

The move was modest, which is consistent with the report‘s mixed message. The headline supported the ringgit, but sticky core prices limited the case for a much larger dollar sell-off. Malaysia’s second-quarter GDP announcement provided another reason for currency traders to remain cautious.

For Bursa Malaysia, lower US rate expectations may support technology and growth shares, as well as real estate investment trusts and other yield-sensitive counters. A stronger ringgit could also reduce costs for companies importing machinery, components or raw materials priced in US dollars.

The counterargument is that a stronger ringgit may reduce the currency translation benefit for exporters earning revenue in dollars. The effect will depend on each companys revenue exposure, expenses and hedging arrangements.

Gold, Crypto and Asian Markets Face the Same Question

The PPI figures are not a simple buy or sell signal.

Gold may benefit if Treasury yields and the dollar continue to fall, but persistent core inflation could keep interest rates elevated and limit the upside for a non-yielding asset.

Technology shares and cryptocurrencies may also respond positively to lower rate expectations. However, if the Fed pushes back against the markets dovish interpretation, high-valuation and highly speculative assets could surrender their gains quickly.

For Asian bonds and currencies, the favourable scenario requires more than a one-day decline in US yields. A sustained improvement would require further evidence that American inflation is cooling without another energy-price shock.

What Investors Should Watch Next

The next confirmation point will be the US Personal Consumption Expenditures Price Index, particularly core PCE—the Feds preferred underlying inflation gauge.

Markets should also monitor:

• Comments from officials ahead of the September 15–17 Fed meeting
• US Treasury yields and the Dollar Index
• Whether September hike expectations remain below 40%
• Service-sector inflation and wage indicators
• Oil prices and developments affecting Middle Eastern supply
• USD/MYR and foreign flows into Malaysian equities and bonds

Julys PPI report is encouraging, but it is not an all-clear signal. Headline wholesale inflation cooled because energy and goods prices fell. Underlying services and core producer prices remain comparatively sticky.

The Fed has gained more room to wait. It has not yet gained enough evidence to stop worrying.

This article is for general information and education only. It does not constitute personalised financial or investment advice.