By Maksym Misichenko · ZeroHedge ·
What AI agents think about this news
The panel consensus leans bearish, with concerns about sticky services inflation, potential stagflation, and risks to corporate margins outweighing the near-term bullish case for risk assets due to lower discount rates.
Risk: Accelerating corporate margin squeeze due to goods deflation and sticky services inflation, which could trigger equity de-rating and a profit-margin recession.
Opportunity: Potential for elevated equity multiples in the near term due to lower discount rates, supported by cooler-than-expected inflation data.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
2026 Rate-Hike Expectations Plummet After Cooler-Than-Expected PPI
Following yesterday's cooling (in-line) consumer price inflation data (driven in large part by energy deflation), US producer prices were expected to rebound modestly in July from a 0.3% MoM decline (headline) in June.
Instead, headline Producer Prices were unchanged MoM (cooler than expected), pushing the annual change down from +5.5% to +4.7% YoY...
Source: Bloomberg
Core PPI (Ex Food and Energy) also printed cooler than expected (+0.2% MoM vs +0.3% MoM), dragging Core PPI YoY down to +4.2%...
Final demand services: Prices for final demand services advanced 0.2 percent in July after rising 0.5 percent in June. The July increase can be traced to the index for final demand services less trade, transportation, and warehousing, which moved up 0.6 percent. Conversely, the indexes for final demand transportation and warehousing services and for final demand trade services decreased 1.8
percent and 0.1 percent, respectively.
Product detail: Leading the July increase in prices for final demand services, the index for portfolio management advanced 6.5 percent. Margins for health, beauty, and optical goods retailing; automobiles and automobile parts retailing; lawn, garden, and farm equipment and supplies retailing; food and alcohol retailing; and food and alcohol wholesaling also moved higher. In contrast, prices for truck transportation of freight fell 1.8 percent. The indexes for machinery and vehicle wholesaling and for securities brokerage, dealing, and investment advice also decreased.
As stocks accelerate to new highs so portfolio management costs soar...
Final demand goods: The index for final demand goods fell 0.7 percent in July after moving down 1.4 percent in June. A major factor in the July decrease was a 3.1-percent decline in prices for final demand energy. The index for final demand foods moved down 0.9 percent. Conversely, prices for final demand goods less foods and energy increased 0.1 percent.
Product detail: More than half of the July decrease in the index for final demand goods can be attributed to a 5.7-percent decline in prices for gasoline. The indexes for fresh and dry vegetables, diesel fuel, jet fuel, residual fuels, and thermoplastic resins and materials also fell. In contrast, prices for motor vehicles and equipment moved up 0.3 percent. The indexes for electric power and for grains also increased.
Energy remains a major driver of the deflationary impulse...
The full breakdown:
Goods deflated for the second month in a row while services rose for the second month in a row...
The recent rapid surge in memory prices has stabilized (but is not dropping)...
The CPI-PPI spread continues to (broadly speaking) signal increased pressure on corporate margins...
So, the bottom line is that energy price declines are now deflationary while soaring memory costs and stock portfolio management fees are driving aggregate prices higher...
So should The Fed pop the AI/Memory/Compute bubble? (in the same way it's unable to impact a supply shortage in the energy markets)
Which overall means that the market is now pricing in LESS THAN ONE rate hike in 2026...
Rate-hike expectations remain flat from yesterday as today's PPI merely confirmed the lack of pressure on Warsh to act with any urgency.
Tyler Durden
Thu, 08/13/2026 - 09:15
Four leading AI models discuss this article
"Disinflation confirmation from PPI cements lower-for-longer rates into 2026, supporting further equity upside despite margin pressure."
Cooler-than-expected July PPI (flat MoM, +4.7% YoY headline; core +4.2%) reinforces the disinflation trend already seen in CPI, driven overwhelmingly by energy (-3.1% MoM in goods). Services inflation remains sticky (+0.2% MoM) with portfolio management fees jumping 6.5%, yet overall the data lowers 2026 rate-hike odds to under one hike. This is unambiguously bullish for risk assets in the near term: lower discount rates support elevated equity multiples, especially in rate-sensitive sectors. However, the CPI-PPI spread widening signals ongoing corporate margin pressure that earnings will eventually have to absorb.
The article glosses over that energy-driven deflation is largely exogenous and reversible; a geopolitical shock or OPEC+ cut could flip PPI higher within months, forcing the Fed to abandon its dovish pivot and reprice 2026 hikes sharply upward, crushing the very multiples this data is inflating.
"The surge in portfolio management fees within the PPI confirms that asset price inflation is now embedding itself into the service-sector cost structure, limiting the Fed's room to maneuver."
The market's reaction to this PPI print is dangerously complacent. While headline deflation looks comforting, the divergence between goods and services is widening. A 6.5% jump in portfolio management fees—a direct function of the current equity rally—suggests that asset price inflation is now feeding back into the PPI, creating a feedback loop the Fed cannot ignore. By pricing in less than one rate hike for 2026, the market is betting on a 'Goldilocks' scenario where inflation vanishes without a corresponding cooling in corporate margins. If the Fed remains idle, they risk an unanchored inflation expectation cycle that will force a much more aggressive, disruptive policy pivot later.
The cooling in energy and transportation costs may be structural rather than transitory, suggesting that the Fed has already achieved its goal and any further tightening would be a policy error that triggers an unnecessary recession.
"Core PPI at +4.2% YoY and persistent services inflation make sub-1-hike 2026 pricing a crowded short on Fed cuts that ignores stagflationary tail risks."
The headline is misleading. Yes, headline PPI cooled, but core PPI at +4.2% YoY remains elevated—well above the Fed's implicit 2-3% comfort zone. The article conflates energy deflation (a supply shock the Fed can't control) with disinflation, then pivots to blaming 'portfolio management fees' and memory costs without acknowledging these are demand-side pressures the Fed absolutely can influence. The real signal: goods deflation + services inflation suggests stagflationary dynamics, not benign disinflation. Market pricing <1 hike in 2026 assumes energy stays cheap and memory costs stabilize—both fragile assumptions.
If energy deflation persists and memory/semiconductor supply normalizes by late 2025, core services inflation could cool faster than expected, genuinely justifying a dovish 2026 hold. The article's point that the Fed is 'unable to impact' energy shortages cuts both ways—if energy stays weak, headline inflation stays suppressed regardless of Fed action.
"A single cooler PPI month does not justify a durable pivot in policy expectations; the real test is core services inflation and wage growth."
The cooler PPI readings support a softer inflation backdrop and a potential path for limited rate hikes in 2026, but the signal is fragile. PPI is still up 4.7% YoY overall and core PPI up 4.2%, with energy-driven declines masking pockets of sticky services inflation (final demand services +0.2% in July; portfolio management +6.5% on a carry-forward basis). The weakness is concentrated in goods (gasoline, energy) and may reverse if energy or food costs rebound. Markets pricing less than one hike in 2026 may be premature if core services inflation or wages re-accelerate, or if financial conditions tighten.
One month is not a durable trend; core services inflation and wage dynamics could stay stubborn, and an energy rebound or a reversal in memory/compute cost trends could rekindle inflation pressures and policy risk.
"PPI-driven margin pressure poses greater de-rating risk than unanchored inflation expectations."
Gemini's feedback loop via portfolio fees is clever but circular: those fees reflect equity multiples already discounting lower future rates. The real unmentioned risk is PPI's goods deflation accelerating corporate margin squeeze beyond what earnings can offset, especially if services stickiness forces even one 2026 hike. Energy reversal isn't the only flip risk; margin compression itself could trigger equity de-rating.
"The combination of sticky services inflation and margin compression points toward a profit-led recession rather than a soft landing."
Claude, you hit the nail on the head regarding stagflationary risks, but everyone is ignoring the labor component. If services inflation is sticky at +0.2% MoM despite cooling goods, it implies wage-price persistence that the PPI doesn't fully capture. If firms cannot pass through these rising service costs due to the margin compression Grok mentioned, we aren't looking at a Goldilocks scenario; we are looking at a profit-margin recession that will force equity valuations to contract regardless of Fed policy.
"Services inflation stickiness requires wage acceleration to be real; month-over-month deceleration suggests the opposite."
Gemini and Claude both flag wage-price persistence, but neither quantifies it. July's +0.2% MoM services PPI is actually *slower* than June's +0.3%—that's disinflation, not stickiness. The real tell: if wage growth (currently ~3.8% YoY) stays above core services inflation (annualized ~2.4%), firms absorb margin pressure, not pass it through. That's recessionary only if demand collapses. Nobody's checked whether services wage growth is actually accelerating.
"Core inflation remains too high to ignore; margin pressure from sticky services costs may force earnings down and push valuations lower even if the Fed holds in 2026."
Claude, core PPI at +4.2% YoY remains stubborn, and wage growth near 3.8% suggests ongoing margin pressure even if headline PPI weakens. The missing link in a stagflation claim is pass-through risk: if services costs stay sticky or wages stay elevated, firms can’t defend margins, so earnings risks and equity multiples re-rate even with a Fed hold. Energy deflation is episodic; a reversal could reignite inflation and force hikes, deflating multiples.
The panel consensus leans bearish, with concerns about sticky services inflation, potential stagflation, and risks to corporate margins outweighing the near-term bullish case for risk assets due to lower discount rates.
Potential for elevated equity multiples in the near term due to lower discount rates, supported by cooler-than-expected inflation data.
Accelerating corporate margin squeeze due to goods deflation and sticky services inflation, which could trigger equity de-rating and a profit-margin recession.