The Producer Price Index (PPI) rose by 1.4% in just one month. The market expected 0.5%. In other words, the figure was almost three times what was anticipated. But the real problem is not the one-time surprise. It’s what that number implies when analyzed in depth.
If that pace is annualized, wholesale inflation is running at nearly 18%. And if we look at core inflation —that is, inflation excluding food and energy— the number is also extremely high: around 12.6% annualized.
This point is key and often goes unnoticed. Core inflation removes precisely the components most affected by external shocks like the war in Iran. In other words, it cleans up the noise. And what it shows today is that inflation is rising even when the direct impact of the geopolitical conflict is eliminated.
In other words: it’s not just the war. Inflation is alive at the heart of the economic system.
Moreover, year-on-year data confirms the trend: wholesale inflation is already at 6%, while core inflation reaches 5.2%, both well above market expectations. This is not a minor deviation. It’s a regime change.
The inflation coming from the base of the system
The PPI does not measure consumer prices. It measures costs at the production stage. It’s the inflation that occurs before products reach the shelf. It is, in simple terms, the “pipeline” of the system.
And what is entering that pipeline today is strong inflation.
This implies that, with some lag, part of those increases will likely be passed on to consumers. If that happens, the narrative of declining inflation could quickly become outdated.
The market begins to adjust… and rates react
The reaction has already begun. The 30-year interest rate in the United States has once again surpassed 5%, hovering around 5.10%. This movement has much broader implications than it seems.
First, because long-term rates are the basis on which financial assets are valued. When they rise, the value of stocks —especially growth stocks— becomes more vulnerable.
But additionally, and this is key, they directly impact the real economy. The long-term Treasury bond rate is a fundamental reference for mortgage loans. When that rate rises, financing for housing becomes more expensive.
And that inevitably cools the real estate market.
A market that was already showing signs of fragility now faces a new obstacle: higher rates that reduce demand, make access to credit more expensive, and put downward pressure on activity.
