For the time being, President Donald Trump’s policies have little effect on overall consumer inflation, as evidenced by the consumer price index (CPI) being stable at 2.7% in July. Further up the supply chain, however, there are increasing price pressures, according to new data from the Bureau of Labor Statistics.
After remaining unchanged in June, the producer price index (PPI), which measures the prices that companies pay for goods and services, increased by 0.9% in July, which was far higher than the 0.2% gain that economists had predicted. As a result, the annual PPI rate reached its highest point since 2022, 3.3%.
While goods prices grew by 0.7%, services had the largest increase, rising 1.1%, the largest monthly gain since March 2022. The Labor Department claims that services, especially trade services, which represent the margins of wholesalers and retailers, accounted for more than three-quarters of the total increase. Although this category can be unstable, economists caution that such rises frequently indicate supply chain disturbances.
Notable rises were also seen in goods linked to tariffs, particularly in food, which accounted for 40% of the July increase. Metal prices, such as those of steel and aluminum, which are both subject to 50% tariffs, have increased recently, putting producers under further financial strain.
Trump has put a 10% tariff on the majority of U.S. trading partners since the beginning of the year, in addition to higher charges on certain industries like steel and aluminum. Although many businesses have so far been able to tolerate these expenditures, economists believe that this ability may be waning.
According to Ben Ayers, senior economist at Nationwide, producers’ input prices increased in July as the effects of tariffs intensified. In the upcoming months, more of these costs will probably be passed on to customers as margins are being stretched.
That opinion was supported by Matthew Martin of Oxford Economics, who pointed out that the sharp increase in tariff-exposed items is an indication that companies may soon transfer a larger portion of the cost to customers.
The Federal Reserve is currently faced with a challenging balancing act. Expectations for a September interest rate cut have increased due to slower-than-expected job growth, although future consumer inflation may be fueled by higher producer pricing.
In general, Martin stated that inflation is still higher than the Fed’s target and is probably going to continue to rise. It will be necessary to carefully balance future price and employment data in order to go forward.
