Producer prices rise 0.4%, 5.4% on the year, with oil at $105 — what today’s PPI and Friday’s CPI actually measure, and why the Fed reads them in this order

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.

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.