Inflation at the wholesale level spiked in July, catching markets off guard and raising doubts about whether the Federal Reserve will cut interest rates next month. The Labor Department said producer prices jumped 0.9% from June—way above the 0.2% economists expected. It’s the biggest monthly increase since 2022, and a clear sign inflation is picking back up in both goods and services.
Prices Rising Nearly Everywhere
The Producer Price Index tracks what businesses pay before goods and services reach consumers. When those prices go up, it often means higher prices are coming for shoppers too. In July, prices rose across the board.
Service costs led the way, jumping 1.1%—the biggest one-month gain in years. Trade margins rose 2.0%, mostly from pricier machinery and equipment. Portfolio management fees soared 5.8%. Hotels were up 3.1%. Airfares rose 1.0%. Goods weren’t far behind, climbing 0.7%.
Food costs were a big reason why. They rose 1.4%, with fresh and dry vegetables spiking almost 39%. Prices for beef, eggs, and coffee also climbed. Metal prices went up too, making life harder for manufacturers
Tariffs Add More Pressure
Some blame the inflation spike on new tariffs rolled out earlier this year. Economists had hoped companies might eat those extra costs—but the July data says otherwise. It looks like businesses are passing those costs on, and fast. That could mean more price hikes ahead for consumers.
Markets React Fast
Stocks dipped. The S&P 500 and Nasdaq both slid. Traders pulled back their bets on a big rate cut in September. The U.S. dollar climbed, showing investors now think interest rates could stay high longer.
Before this report, most thought the Fed would cut rates—and maybe even cut them by half a point. Now? A quarter-point cut seems more likely. Some think the Fed might even hold steady if more inflation shows up in upcoming reports.
“This report is a wake-up call,” said KPMG’s chief economist Diane Swonk. “The Fed can’t ignore this kind of price jump.”
A Tight Spot for the Fed
The timing couldn’t be worse. The U.S. economy is already slowing. Housing and manufacturing are dragging. People are spending less. Credit card debt’s rising. Paychecks aren’t growing like they were. The Fed had planned a few small cuts to help ease things—but now they have to worry about stoking more inflation.
Next up are two key reports: the Consumer Price Index and the Fed’s go-to inflation gauge, the PCE index. If those show inflation rising too, the Fed will be under more pressure to back off rate cuts. But if they come in softer, maybe July’s numbers were just a fluke.
Politics Heat Up Too
The 2026 midterms are getting closer, and inflation is still top of mind for voters. A fresh surge in prices could spell trouble for the White House, especially since critics blame tariffs and big spending for keeping prices high.
Right now, most shoppers aren’t feeling these wholesale hikes yet. But if businesses start passing them down, costs for food, travel, and housing could all climb. That would squeeze budgets again.
Some economists say don’t panic—it’s just one report. Food and energy prices swing a lot. But this increase hit a wide range of goods and services. That makes it harder to brush off.
What Will the Fed Do Next?
The Fed’s job is to keep inflation under control while making sure the economy doesn’t tank. That’s getting harder. If they cut rates too much, inflation could take off again. If they don’t cut at all, the economy might stall.
Their next meeting is in September, and pressure is building. A small cut could keep markets happy without sending the wrong signal. A bigger one could make things worse.
Everyone—investors, businesses, and regular people—will be watching the next inflation reports closely. They’ll show if this producer price spike is the start of a new problem, or just a one-time jump in an otherwise cooling trend.
