The latest released U.S. Producer Price Index for July ( PPI ) has surprised the market. The year-on-year rise reached 3.3%, far exceeding analysts' expectations of 2.5%, marking a new high since February of this year. The month-on-month increase was 0.9%, the largest rise since June 2022.

The release of this data immediately triggered a reassessment of the market's timeline for the Federal Reserve's interest rate cuts. The likelihood of a rate cut in September dropped from 98.5% to 90%, while the probability for December plummeted from 56% to 43%, suggesting that the market is returning to expectations of two rate cuts within the year.

This PPI data seems to be a correction to the previously released Consumer Price Index ( CPI ). Earlier analyses pointed out that there are still inflation risks in the core CPI data, but the market attitude is overly optimistic. In addition, the impact of tariffs has not been fully reflected in the data. Today's PPI data undoubtedly sounded the alarm for the market, leading to a plunge in both the US stock market and the cryptocurrency market after its release.

However, experts believe there is no need for excessive panic. The inflation situation is not uncontrollable, and the market had already made some psychological preparations for the inflationary pressures brought about by tariffs, especially since institutional investors have not fully participated in the recent 'retail investor craze' in the US stock market. This also explains why the Nasdaq index ultimately recovered its losses and closed with a slight rise.

In contrast, the cryptocurrency market dominated by retail investors reacts more violently. Yesterday's strong rise stands in stark contrast to today's deep correction, fully demonstrating the high volatility characteristics of this market.

Overall, the latest PPI data reminds us that the road to economic recovery and inflation control remains challenging. Investors need to stay vigilant and closely monitor subsequent economic indicators and policy developments.