US Producer Prices Flat in July

U.S. producer prices remained unchanged in July as goods prices declined by 0.7%, though a rise in service costs suggested inflation could remain elevated.

The flat reading in the Producer Price Index (PPI) for final demand last month followed a revised 0.1% drop in June, according to data from the Labor Department's Bureau of Labor Statistics released on Thursday. Economists polled by Reuters had forecast the PPI rebounding 0.2%, following a previously reported 0.3% decline in June.

The cost of services increased 0.2%. Most of the data were collected early in July, meaning sharp oil price increases toward the end of the month were probably not reflected in the PPI.

In the 12 months through July, the PPI increased 4.7%, down from a 5.5% rise in June. The Federal Reserve tracks the Personal Consumption Expenditures (PCE) price indexes for its 2% inflation target. Following unexpected job losses in July and mild consumer inflation readings, the PPI report added to the case for the U.S. central bank to keep interest rates unchanged at the September 15-16 policy meeting.

The Fed last month left its benchmark overnight interest rate in the 3.50%-3.75% range. Prior to the PPI report, economists estimated that the PCE price index excluding food and energy components increased by 0.2% in July after gaining 0.1% in June.

In a separate development, U.S. retail sales fell in July for the first time in nine months as the boost from big tax refunds faded, suggesting that consumer spending was slowing down. The unexpected decline reported by the Commerce Department on Friday was also payback after Amazon pulled forward its Prime Day event to June from July, with other retailers offering competing promotions.

Retail sales dropped 0.6% last month after an unrevised 0.2% gain in June, the largest decline since May 2025. The data added to unexpected job losses and mild inflation readings in bolstering financial market expectations that the Federal Reserve would not raise interest rates in September.

Economists said July's sales decline clearly reflected a decrease in volume as consumer sentiment deteriorated across the political spectrum, with an especially big month-to-month drop among Republicans. The University of Michigan's Surveys of Consumers reported its Consumer Sentiment Index dropped to 51.0 this month from 55.2 in July.

Despite the overall decline, there were pockets of strength in retail sales last month. Receipts at clothing stores rebounded 1.9%, likely boosted by back-to-school shopping, while sales at food services and drinking places increased 0.5%. Financial markets were pricing in a roughly 69.4% chance of the Fed keeping its benchmark overnight interest rate unchanged at its September policy meeting.