Producer prices in July rose faster than forecast across the board, giving investors and the Federal Reserve an inflation surprise just over a week out from Fed Chair Jay Powell's crucial Jackson Hole speech.

The Producer Price Index (PPI) for July showed inflation for businesses rose 0.9% over the prior month in July, well ahead of the 0.2% increase that was forecast data from the BLS showed Thursday. On an annual basis, prices rose 3.3%, the most since February.

"Core" producer prices, which exclude food, energy, and trade services, rose 0.6% last month, the most since March 2022 and an uptick after prices were unchanged in June. On an annual basis, core producer prices rose 3.3%, which was also the most since February.

Stock futures slipped following the release of Thursday's data.

Thursday's data comes two days after the July Consumer Price Index showed inflation pressures were broadly in-line with forecasts, while "core" inflation last month reached a six-month high. On an annual basis, consumer prices rose 3.1% in July, an increase from 2.9% the prior month and still well ahead of the Fed's 2% inflation target.

Producer prices measure price changes from the perspective of businesses offering or selling goods and services in the economy; consumer prices measure changes from the perspective of those paying for those goods and services.

Thursday's data suggests, then, that companies will not be absorbing all costs incurred from tariffs but will pass some of these costs on to consumers in the form of higher prices.

Stephen Brown, an economist at Capital Economics, wrote in a client note Thursday the surge in core PPI "was due to a head-scratching increase in margins for wholesalers and retailers."

Brown added that this data still implies inflation running ahead of the Fed's target, but a chunk of last month's rise in services inflation is due to higher costs for portfolio management, a function of the stock market's rally since reaching its April lows and something that "won't concern the FOMC," in Brown's view.

Recent labor market data, as well as a growing number of Fed officials arguing for the merits of a rate cut, have seen markets price in a near-certainty that the central bank will begin cutting rates next month.

Data from the CME Group early Thursday showed the odds of the Fed cutting rates by 0.25% next month stood at around 96%. On Wednesday, however, the odds for a September cut stood at 100%, with markets a nearly 10% chance to the Fed cutting rates by 0.50%.

On Aug. 22, Powell is expected to speak at the Jackson Hole Economic Symposium, where the Fed chair will likely outline his case for the central bank to begin a rate-cutting cycle this fall.

This is breaking news. More to come.

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