US producer prices for August rose 0.4% from July, matching the consensus, and 5.4% from a year earlier — the fastest annual rate since May, up from a revised 4.8% in July, as last year’s energy declines dropped out of the comparison. The core measure, which strips out food, energy and trade services, rose 0.2%, a tenth below expectations, and 4.6% on the year. Figures are from the Bureau of Labor Statistics index series as of 12:40 UTC; the goods-and-services split follows in the full release. Weekly jobless claims, out at the same time, had run at 206,000 the week before.
The numbers arrive on a morning when Brent crude is holding above $100 after Wednesday’s $100.71 settlement, the first close in triple figures since July; the 10-year Treasury yield closed at 4.857%, its highest since November 2023; and the European Central Bank raised its three key rates by a quarter point at 12:15 UTC, taking the deposit rate to 2.50% from 16 September, saying the Middle East conflict ‘continues to generate inflation pressures’ and that inflation ‘is set to remain well above target for an extended period’; its new projections put euro-area inflation at 3.0% this year, 2.5% next and 2.1% in 2028. The Federal Reserve meets next Tuesday and Wednesday, 15–16 September, with CME FedWatch pricing a quarter-point increase at roughly 60% before this morning’s data.
The market’s first read: the print itself was close to expectations, so the market traded oil instead. Brent jumped more than 3% to about $105 and WTI to $99.70 after President Trump warned Iran of a hard strike, per Trading Economics; the 10-year yield rose to 4.88%, the 5-year to 4.66% and the 30-year to 5.32%. S&P 500 futures were down 0.3%, Nasdaq 100 futures 0.8%, Dow futures flat, the VIX up to 17; gold fell 1.2% to $4,409 and bitcoin 3% to $77,000; the euro slipped to $1.16 after the ECB and the Stoxx 600 was down 0.5%. A headline in line and a core below consensus would normally be a relief for bonds. That yields rose anyway says the bond market is trading the $105 barrel this morning, not the August data.
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The rest of this note is the explainer we have been asked for: what the Producer Price Index and the Consumer Price Index each measure, why they can disagree, how a barrel of oil at $100 travels from one to the other, and how the Fed reads the pair when they land two days apart in the week before a meeting. The prints are the news; the mechanics are what let you read the next ones without us.
The bond market’s tell: the weak point is the 10-year, not the long bond
Before the explainer, one chart read that changes how the week’s rate story should be told. The chatter is about the long end — the 30-year at 5.29%, the Treasury tripling its buyback of 10- to 20-year debt to steady it. But put the two Treasury funds side by side and the weakness is not where the chatter says. The 7–10 year fund IEF closed Wednesday at $91.90, a new one-year low, through the $93.5 area that held in June and again in August, and down 3.0% over the window. The 20-year-plus fund TLT closed at $81.73 — down 6.2% over the same year, but half a percent above its 17 August closing low of $81.35; Wednesday’s session traded down to test that August low and closed back above it. The long bond has not made a new low; the 10-year has. The 3–7 year fund IEI confirms it, also at a fresh one-year low of $115.37. And the 1–3 year fund SHY, at $81.63, is fractionally above its 1 September low of $81.59 — no new low there either.
So the sell-off is concentrated in the belly of the curve, five to ten years, where the 5-year yield is at 4.61% and the 10-year at 4.86%, and it is milder at both ends: the front end, which is anchored by the Fed’s next two or three meetings, and the long end, which prices the decade after that. That is the shape of a market repricing the path — how many hikes, how long inflation stays above target — rather than the destination. It also fits the week’s news: the belly is where breakevens live, where a $100 barrel shows up first as an inflation expectation, and it is exactly the maturity range the Treasury’s buyback was meant to support and, at $6 billion, did not. Relative strength in the long bond against the 10-year is not a bullish call on duration; it is a statement that the market’s problem this week is the next five years of inflation, not the next thirty. For the equity sort, that matters: it is the medium-term discount rate that software and health-care multiples are built on.
What the PPI measures, and what it leaves out
The Producer Price Index tracks the prices that domestic producers receive for their output, measured at the first commercial sale: the factory gate, the farm gate, the mine mouth, the wholesaler’s invoice. The Bureau of Labor Statistics samples more than 10,000 individual product and service prices each month and rolls them into the headline number most people quote, PPI for final demand, which covers goods, services and construction sold for personal consumption, capital investment, government and export. The core version strips out food, energy and trade services — the last one being the margin wholesalers and retailers earn, which swings with their costs rather than with demand.
Two things the PPI does not do. It does not measure what a household pays: sales taxes, retail mark-ups and the price of imported goods sit outside it, because it follows the domestic producer, not the shopper. And it is not the Fed’s target. What makes it matter to the bond market is its position in the pipeline. Energy and raw materials hit producer prices first — a refinery sells diesel at the new price within days of a crude move, long before the airline that burns it changes a fare. And several PPI components, airfares, portfolio-management fees, physician services, flow directly into the PCE price index the Fed actually targets, which is why economists sit down on PPI day and re-estimate core PCE for the month before the CPI is even out.
The last reading, for July, was unchanged on the month and up 4.7% on the year, below the 4.9% expected and down from 5.5% in June, because energy prices fell that month; the core measure ran at 4.2%. Today’s consensus was +0.4% on the month for the headline and +0.3% for core, with the year-on-year rate expected to turn back up as last year’s energy declines drop out of the comparison. The print matched the headline, undershot the core by a tenth, and put the annual rate at 5.4%.
What the CPI measures, and why Friday’s number moves more
The Consumer Price Index tracks what urban households pay for a fixed basket of goods and services: shelter, food, energy, cars, clothing, medical care, airfares, insurance. Shelter alone is more than a third of the index, and most of it is measured through rents and an estimate of what owners would pay to rent their own homes, which is why housing moves the CPI slowly and for a long time. Energy is roughly 7% of the basket, gasoline the largest single piece of it. The core version removes food and energy to show the trend underneath; the Fed talks about core because it is less noisy, and about services because that is where wages show up.
The CPI includes what the PPI leaves out — imports, taxes, retail margins — and it is the number that contracts, wages and Social Security payments are indexed to, which gives it a second life the PPI never has. It is also, historically, the bigger market mover of the two: the Treasury market’s largest one-day moves on data days cluster around CPI releases, not PPI, because the CPI is the closer proxy for the PCE index the Fed targets and because it arrives with the housing component the PPI does not carry.
The last reading, for July, put headline inflation at 3.4% on the year and 2.5% for core, each a tenth lower than June, after a 0.1% monthly rise; the Fed’s preferred measure, core PCE, ran at 3.3% in July. For August, out Friday at 12:30 UTC, the consensus is +0.4% on the month for both headline and core, with the annual rate holding at 3.4% for the headline and easing to 2.4% for core; prediction markets lean toward a softer 0.2% core print. Against a 2% target, every one of those numbers is still an argument for the hike the market has priced.
Why this week’s pair matters more than usual: oil at $100
A barrel of crude at $100 enters the two indices at different speeds and through different doors. It reaches the PPI first and hardest: refined fuels, chemicals, plastics, fertiliser and freight are producer prices, and they reprice within the month. That is why energy is a larger share of the PPI’s swings than of the CPI’s, and why the PPI’s year-on-year rate is expected to rebound this morning even though July’s was soft — August 2025 was a month of falling energy prices, so the comparison flatters nothing. There is one quirk that can hide the move: the PPI’s trade-services component measures margins, and when wholesalers and retailers absorb higher input costs rather than pass them on, headline PPI can print cooler than the pipeline actually is. A soft headline with hot goods prices underneath is a margin squeeze, and the stock market sells retailers and consumer names on it even as the bond market rallies.
The CPI catches oil later and more broadly. Gasoline shows up in the same month; airfares, delivery charges and the energy component of rents and utilities follow over a quarter; and the second-round effect, higher prices for everything that is shipped, shows up in core goods after that. So this week’s pair is a snapshot of the pipeline at two points. Today’s PPI tells us how much of the $100 barrel has reached producers; Friday’s CPI tells us how much has reached households — and because Brent only crossed $100 on Wednesday, most of that is still in transit. Which is the point the bond market has been making all week at 4.86%: it is not pricing August’s inflation, it is pricing September’s and October’s.
Our own instrument for this is the inflation lab, and the sort we have described since Tuesday is the equity market’s version of the same read: the parts of the AI build-out with signed orders and pricing power held while software, health care, utilities and the consumer names were sold on a discount rate that oil keeps raising. The two inflation prints decide whether that discount rate has peaked.