The U.S. Department of Labor's seasonally adjusted core measure of producer price inflation grew well beyond expectations with a 0.7% month-over-month gain in July, much faster than the 0.2% gain seen in the previous two months. The all-items measure of producer price inflation soared 1.2% in the month, following an even faster 1.8% pace in the prior month.

Economists were expecting core inflation to increase just 0.2% in the month, while the all-items index was predicted to advance 0.6%.

From a year ago, the core measure of producer price inflation was up 3.5%, three-tenths above expectations. The annual headline rate came in at 9.8%, the fastest year-over-year rate since 1981.

Given the early release of the U.S. Consumer Price Index last week, many economists said the PPI report was unlikely to hold as much market-moving ability.

Food prices increased 0.3% in the month, while energy increased 3.1%.

Residential gas prices soared 8.8% in the month, contributing to a 23.5% year-over-year gain, while gasoline prices actually fell 0.2% in the month, even as the annual increase was 36.0%.

The total price of intermediate goods rose 2.7% in the month and posted a 16.6% gain from the same time a year ago. Excluding food and energy, the rise was 2.0% month-over-month and 10.2% on the year.

The cost of total crude goods rose 4.2% in the month while the year-over-year increase stood at 51.5%. Excluding food and energy, the monthly rise was 3.4%, or 36.3% on the year.

By Patrick McGee and edited by Nancy Girgis