Updated from 8:43 a.m. EDT

Wholesale-level inflation for July was much more benign than economists had been expecting, giving a big boost to stocks Tuesday morning.

The Labor Department said last month's producer price index rose 0.1%. Economists, on average, were expecting a 0.4% increase, according to a

Bloomberg

survey. The more important news was that the core PPI, the number that excludes food and energy prices, fell 0.3%, whereas the estimate was for a 0.2% increase.

Because of the soft numbers, Wednesday's consumer price index will become even more critical to Wall Street's thinking as it tries to gauge the chances of another

Federal Reserve

rate hike at its next meeting.

Last week, the central bank left its fed funds target rate unchanged at 5.25%. The Fed had raised rates at 17 straight meetings going back to June 2004.

For now at least, traders will figure the report lessens the chance of another boost, and futures on the

S&P 500

and the Nasdaq 100 jumped following the release of the data. S&P futures were trading 10 points above fair value, and the Nasdaq 100 was set for a 17-point advance at the open.

Miller Tabak's Randy Diamond says the lower-than-expected core reading was the product of a 0.8% decline in auto pricing that took 0.4% off the number.

"That is a major move that is normally 'smoothed out' in seasonal adjustments, but

the Bureau of Labor Statistics has not taken into account the auto discounts that have become commonplace," he said in an emailed statement. "You can expect to see a much higher PPI reading to offset this

reading in the coming months."

On the whole, Diamond said that given the concerns that the Fed might not have been fighting inflation aggressively enough when it paused its tightening campaign, "this certainly helps allay those concerns for now."

Peter Morici, a professor at the University of Maryland's business school, said in an email that even though prices for oil and other materials continue rising, productivity growth is allowing manufacturers to absorb the higher costs.

"Third-quarter productivity figures are likely to reveal a robust recovery from a lackluster second-quarter performance," he said.

Additionally, Morici said the upcoming CPI report, which covers a broader range of goods and services than the PPI, and new housing starts for July, "will further illuminate Federal Reserve options."