US stocks slip as hotter-than-expected wholesale inflation tempers rate cut optimism

US stocks fell at the open on Thursday after fresh data showed that wholesale prices rose far more than expected in July, casting some doubt over prospects of an aggressive interest rate cut from the Federal Reserve next month.

The Dow Jones Industrial Average dropped 168 points, or 0.4%, while the S&P 500 shed 0.2% and the Nasdaq Composite slipped 0.1%. The declines came a day after the S&P 500 and Nasdaq closed at record highs, fuelled by hopes of monetary easing following a cooler-than-expected consumer price inflation (CPI) report earlier this week.

However, Thursday’s producer price index (PPI) report disrupted that optimism. Wholesale prices rose 0.9% month-on-month in July, sharply above economists’ expectations of 0.2%, and well above the flat reading in June. Economists often view PPI as a leading indicator for consumer prices.

The surge was largely driven by a spike in “portfolio management” costs and airfare prices. Stripping out these volatile components, the increase would have been closer to forecasts. Despite the hotter print, CME’s FedWatch tool showed markets still pricing in about a 93% chance of a quarter-point rate cut in September, though the odds of a larger half-point move have disappeared.