Wholesale Prices Were Flat in July — But Your Input Costs Are Still Up 4.7% From a Year Ago
July PPI came in unchanged month over month and 4.7% year over year. Here's what the split between falling energy and sticky services means for your margins.
The Bureau of Labor Statistics released the July Producer Price Index on August 13, and the headline was a flat line: final demand prices were unchanged for the month, seasonally adjusted, against a consensus expectation of a 0.2% increase. On an unadjusted basis, final demand prices are up 4.7% over the 12 months ended in July — down from 5.5% in June and from a May peak near 5.9%.
That is the second consecutive month with no monthly increase in final demand. It is genuinely good news. It is also not the same thing as costs going down.
The flat headline hides a split. Goods got cheaper; services did not.
Final demand goods fell 0.7%, driven by a 3.1% drop in energy, including a 5.7% slide in gasoline. Food prices fell 0.9% — the second straight monthly decline in wholesale food.
Final demand services rose 0.2%, led by a 6.5% surge in the portfolio management index — a component tied to asset values, not to anything most operating businesses buy.
Final demand construction advanced 2.2%, a large move that partially offset the goods decline.
Core PPI (excluding food and energy) rose 0.2% for the month, below a 0.3% consensus, and 4.2% year over year — the lowest annual core reading in four months.
Final demand less foods, energy and trade services rose 4.7% over 12 months.
Further up the supply chain, processed goods for intermediate demand fell 0.6%, weighed down by a 3.1% decline in processed energy goods, including a 6.7% drop in diesel fuel prices. Intermediate demand is the layer that feeds into what you pay next quarter, so a decline there is a forward-looking positive.
One component worth flagging for anyone buying hardware: semiconductor and electronic component manufacturing prices are still running 27.1% above a year ago, only marginally off June’s 27.7%.
“Business costs are no longer climbing as steeply as they did earlier this year, a sign that consumer price increases may moderate in the coming months.”
Economist Chris Rupkey noted that for a second consecutive month, PPI final demand prices have not risen — a meaningful break in a run that had been feeding through to consumer costs.
Why it matters
PPI measures what sellers receive — it is the wholesale, input-cost side of inflation, where CPI is the retail side. It usually moves first. A flat PPI in July, following July’s CPI print of 3.4% headline and 2.5% core, suggests the pipeline pressure feeding consumer prices is easing rather than building.
But the annual number is the one that hits your P&L. 4.7% year over year means the basket of things businesses buy still costs materially more than it did last August. A flat month does not claw any of that back. It only stops the climb.
The energy story is the same trap the CPI print set. Wholesale gasoline fell 5.7% in a month and diesel fell 6.7% — and both are still well above where they were a year ago. A monthly decline in a series that is up double digits annually is relief from the rate of increase, not relief from the level.
And the composition matters more than the headline for most small businesses. The two biggest downward drivers — energy and food — are volatile and can reverse in a single month. The 2.2% construction increase and the sticky 0.2% services increase are the parts that tend to stay. If you buy services and construction rather than fuel and commodities, your own input inflation ran hotter than the flat headline suggests.
What this means for small business owners
Reprice off the annual number, not the monthly one. If you are setting 2027 pricing or renewing a customer contract this quarter, “wholesale prices were flat in July” is not the input. 4.7% over 12 months is. A flat month is a reason to feel less pressure, not a reason to hold prices where a year of 4-5% cost growth has already eroded the margin.
Check whether your cost mix looks like the goods side or the services side. Pull last twelve months of COGS and operating expense by GL account and sort by growth rate. A business whose costs are fuel, freight and commodity inputs got real relief in July. A business whose costs are subcontractors, professional services, software and construction did not. The national average is not your basket — that was the lesson of the CPI print and it applies with more force here, because the July PPI headline is an average of a −0.7% and a +2.2%.
Break energy out of catch-all accounts now, before the direction changes. Fuel buried inside “vehicle expense” and utilities buried inside “office expense” mean a 5.7% monthly drop and a double-digit annual increase are both invisible until year-end. Two months of falling wholesale energy is the easy time to build the account structure — you want it in place before the next upward move, not after.
Watch intermediate demand as your lead indicator. Processed goods for intermediate demand fell 0.6%, and processed energy fell 3.1%. That is the layer that shows up in your supplier’s price list one or two quarters out. If you are negotiating an annual supply agreement in the next 60 days, this is leverage — your supplier’s own input costs came down in July, and that is documented in a federal release.
Don’t reset your capex model on two months of data. Core PPI at 4.2% annually is still well above anything that would justify assuming cheap money or cheap inputs going forward. The Fed meets September 15-16, and a cooling PPI is one input among several. Model your equipment purchase at today’s financing cost, not a hoped-for one.
The bottom line
Two consecutive months without an increase in wholesale prices is the clearest sign yet that the cost pressure of the first half of 2026 is genuinely easing. But the level is still 4.7% higher than a year ago, the relief is concentrated in the most volatile components, and services and construction are still climbing. Read the split, not the headline — and use the pause to get your cost accounting granular enough that you can see the next move coming.
