Cool CPI, PPI Send S&P 500 to a Record

At 8:30 sharp on Wednesday morning in New York, the Bureau of Labor Statistics posted a figure that a fortnight of nervous traders had been waiting on: consumer prices rose 0.1% in July. Tame. Boring, even. By the closing bell the S&P 500 had a shiny new record next to its name at 7,798.99, and the argument over what Jerome Powell does next month had been turned on its head.

For most of this cycle the debate was about when the Fed would cut. With the policy rate sitting at 3.50% to 3.75% and headline inflation still running at 3.4%, a chunk of the market had swung the other way and started bracing for a September hike instead. Cooler prices took the wind out of that. Futures desks that priced roughly a 60% chance of a quarter-point increase in early August had knocked the odds down to about 25% by Wednesday afternoon.

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What the numbers actually said

July’s Consumer Price Index rose 0.1% on the month and 3.4% over the year, down from 3.5% in June. Strip out food and energy and core CPI came in at 0.2% on the month and 2.5% annually, the softest yearly reading since February. Petrol did a lot of the heavy lifting, falling 2.9%, while medical care services climbed 0.6%.

Then Thursday brought the wholesale side of the ledger, and it was cooler still. The Producer Price Index was flat in July against forecasts for a 0.2% rise. Final demand goods dropped 0.7%, services nudged up 0.2%, and the annual figure landed at 4.7%. Core PPI rose 0.2%, under the 0.3% the street had pencilled in. Two prints, one direction.

Markets took the win

Wall Street did what Wall Street does with good news on inflation. The S&P 500 added 0.65% on Wednesday to close at that record 7,798.99. The Nasdaq Composite jumped 0.81% to 26,803.03. The Dow lagged but still finished green, up 0.13% to 53,839.99. Falling oil prices helped, a neat reversal from Monday, when a spike in crude had dragged the whole board lower.

The relief makes sense. Sticky inflation with rates already restrictive is the kind of setup that keeps the Fed frozen, or worse, tempts it to tighten into a slowing economy. A cool CPI followed by an even cooler PPI hands Powell cover to sit on his hands rather than reach for the hammer.

The catch before September

Before anyone books the party, the Fed’s rate-setting meeting is not until 15-16 September, and a mountain of data lands first. August nonfarm payrolls, the August CPI and the August PPI all arrive before the vote. Any one of them could scramble the picture again, and Powell has a habit of using the Jackson Hole stage in late August to reset expectations.

For now the base case is a hold, with the hawks less confident than they were a fortnight ago. Traders are no longer seriously worried about a hike, and the doves are starting to whisper about a cut before year-end. Whether the whisper turns into anything depends on whether this cooling is a trend or a one-month wobble. Two soft inflation reports do not end the story, but they buy calm, and calm is what pushed the S&P to a record this week. (Not investment advice.)

Did you know: the Fed has only two scheduled meetings left in 2026 after September, so every inflation print between now and December carries outsized weight.

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