INDICATOR: July Producer Price Index

KEY DATA: PPI: Up 0.3 percent; Excluding Food and Energy: Up 0.4 percent; Energy: Down 0.4 percent: Food: Up 0.5 percent

IN A NUTSHELL: “Wholesale cost increases are beginning to accelerate, and we haven’t seen the full impact of the energy and food increases yet.”

WHAT IT MEANS: Businesses have benefitted from largely minimal increases in their costs, whether it be labor or goods. That changed a bit in July as the Producer Price Index rose moderately.

Food costs were up sharply and that is likely to continue for quite a while. Consumer product expenses increased moderately, led by a jump in vehicles and tobacco. Gasoline prices were down sharply, and that has changed dramatically already. There was also a rise in capital equipment costs, especially trucks.

Looking toward the future, conditions are going to change. While intermediate costs were down, I doubt we will see declines in fuels or chemicals for a while. Indeed, crude costs jumped.

What we see happening is that food and energy costs are jumping, and that should start bleeding into finished goods prices.

MARKETS AND FED POLICY IMPLICATIONS: The increase in wholesale costs was a little more than expected, but nothing like what we may be seeing in the months to come.

The question, though, is how much of the producer expenses winds up in consumer goods. The path from wholesale to retail is tortuous and frequently a dead end, so I don’t expect broad-based increases in consumer prices.

But the pressures coming from food and energy will be passed through to no small extent, so look for top-line prices to surge, probably starting with the August data. That might sound like bad news for the Federal Reserve, but there is nothing that monetary policy can do about droughts or refinery problems.

Instead, the Federal Open Market Committee will be watching the economic data, especially jobs, and if the August jobs report reflects the lowered level of unemployment claims, we should see another decent payroll increase. No matter what happens to the unemployment rate, if businesses are adding workers that will mean better income gains, continued rises in consumer spending and ultimately lowered unemployment rates.

That would take the third round of quantitative easing off the table no matter how much Wall Street begs or pressures for it.