US stocks drop as producer inflation surges ~ EconomyLens.com

London (AFP) – Wall Street shares fell Thursday after data showed US producer price inflation surged far more than expected in July, denting optimism that the Federal Reserve would soon start cutting interest rates. Analysts said the surprise spike raised concerns that President Donald Trump’s tariffs were having an impact on businesses, which could soon pass on the higher prices to consumers. The broad-based S&P 500 index of leading companies and the tech-heavy Nasdaq fell throughout the morning in New York, retreating from record highs set the previous day.

In Europe, however, the main markets in Paris, Frankfurt, and London registered positive figures by the close of trading. London rallied back into the green from an earlier slump as data showed the UK economy had slowed in the second quarter – though less than feared – as Trump’s tariffs came into effect. The US producer price index (PPI) rose 0.9 percent on a month-on-month basis in July, much higher than the 0.2 percent forecast by analysts after a flat reading in June.

“The large spike in the Producer Price Index (PPI) this morning shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet,” said Chris Zaccarelli, chief investment officer for US-based Northlight Asset Management. The shock figure came after data on Tuesday showed that US consumer inflation held steady in July at 2.7 percent on an annual basis. The two diverging inflation figures complicate the task of the Federal Reserve, which had been widely expected to begin cutting rates in September.

Zaccarelli said the PPI figure was a “most unwelcome surprise to the upside and is likely to unwind some of the optimism of a ‘guaranteed’ rate cut next month”. Bitcoin, which had hit a record high of $124,514.59 on rate-cut hopes, tumbled to $118,297 following the inflation report. “Today’s hot PPI data has reduced the case for a September rate cut ever so slightly,” said Fawad Razaqzada, an analyst at City Index and Forex.com. He said, however, that the market was “still nearly fully” expecting the Fed to cut its rate next month.

“It is likely that the Fed will see through the rise as the one-time increase and their concerns about the jobs market may make them more open to the idea of resuming rate cuts from September,” he said. Elsewhere, oil prices rose as traders awaited Friday’s Alaska summit between Trump and Russian President Vladimir Putin, whose sanctions-hit country is a major crude producer.