Producer prices flat in July, boosting odds of a Fed rate pause

The Labor Department reported no change in producer prices for July, following a 0.1% decline in June, as falling goods prices offset a slight increase in service costs.

Goods prices fell 0.7% while services rose 0.2%. Energy costs dropped 3.1%, and food prices fell 0.9%, driven in part by a record decline in lettuce prices tied to a cyclosporiasis outbreak.

The steady inflation reading has shifted market expectations toward the Federal Reserve holding interest rates at its September meeting, with additional economic reports seen as pivotal beforehand. Stocks gained and Treasury yields declined as investors grew more confident that inflation is stabilizing.

Economists expect only moderate increases in core PCE inflation, including possible effects from recent methodological changes. Despite recent job losses, the labor market has shown resilience, supporting expectations that inflation pressures will remain manageable in the months ahead.

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