Bitunix Analyst: PPI Cools the Hike Pressure — But Core Prices and Long-Bond Supply Still Cap Rate Downside

BlockBeats News, August 14th. US July PPI unexpectedly came in flat month-on-month, with the year-on-year rate falling to 4.7%. Combined with the prior day's CPI cooling in tandem, the data suggest that easing energy prices are relieving production-end inflation pressure. Market bets on a Fed rate hike in September have accordingly fallen from around 50% to roughly 35–40%. However, core final demand PPI (excluding food, energy, and trade services) still rose 0.4% MoM, indicating that underlying price pressures have not fully dissipated. Initial jobless claims also rose to 209,000, reflecting some cooling in the labor market.

What truly warrants attention is that inflation cooling has not simultaneously resolved the US long-term financing problem. The US 30-year Treasury auction cleared at a stopping-out yield of 5.216% on $25 billion in issuance — the highest primary issuance yield since 2001. In an environment of elevated fiscal deficits, rising Treasury supply, and the Fed no longer functioning as a primary buyer, long-dated Treasuries require a higher term premium to absorb the supply — meaning the US economy's cost of capital may not fall as quickly as short-term inflation cools.

At the same time, following Japan's intervention, USD/JPY has again approached 160, and some carry traders have used the post-intervention yen rebound to reestablish funding positions. So long as a US-Japan interest rate differential persists, the yen's attractiveness as a low-cost funding currency will be hard to erase — and if the BOJ hikes or intervenes again, that could bring even greater FX and leverage volatility ahead.

On balance, July's inflation data has given the Fed more room to observe, but this does not mean financial conditions will ease quickly. Even as short-term rate pressure recedes, US fiscal deficits, long-bond supply, energy prices, and yen carry trades can still influence asset pricing through long-end yields and the global cost of capital. What truly matters ahead is therefore no longer any single inflation datapoint — it is whether the inflation cooldown can be sustained, and whether the long-term cost of capital can fall in step.