Here's what new data from the producer price index says about where inflation is headed, according to economists.

US stocks mostly stalled on Thursday as Wall Street digested a much hotter-than-expected PPI inflation print, souring optimism around a large September rate cut. July's Producer Price Index (PPI) came in well above expectations,

Earlier this week, falling bond yields and growing expectations for aggressive Federal Reserve interest-rate cuts in the months ahead helped spark a rotation away from what had been working in the U.S.

The monthly rise was the biggest since June 2022, and the annual increase the highest since February this year. Core PPI, which strips out volatile data points, rose by 3.7 percent over the year, its highest annual rise since April 2021. The PPI measures the output prices for domestic producers of goods and services before they reach consumers.

The S&P 500 rally has a downside for inflation: surging portfolio management costs. Those costs surged 5.8% in July. Yet while portfolio costs are part of the core PCE price index, Fed Chairman Jerome Powell has said that policymakers are more concerned with market-based prices.

Stocks moved lower on Thursday as investors reacted to the producer-price index showing a 0.9% bump for the month of July. According to the PPI report, three-quarters of this increase can be traced to the growing cost for services.

The headline PPI reading rose 0.9% month-over-month. This was more than 4X the increase economists were expecting. Read more

Treasury yields ticked higher after the hotter-than-expected PPI reading, though yields remained below Wednesday end-of-day levels.