AsianFin -- U.S. producer prices rose by 0.9% in July, the steepest increase in more than three years, reigniting worries over a hike in consumer prices.
The monthly surge also suggests a broadening inflation trend that could complicate the Federal Reserve's path forward.
Services led the rise, increasing by 1.1%—the largest gain since March 2022. Key contributors included trade margins, portfolio management fees, hotel room rates, and airline fares. Goods prices climbed 0.7%, led by sharp spikes in food and metals, including significant increases in fresh vegetables, beef, eggs, and electronics. Core PPI, which excludes food and energy, rose 0.6%—another three-year high—bringing year-over-year wholesale inflation to 3.3%.
Economists argue the data confirms what many feared: tariffs are increasingly affecting U.S. businesses. “This is a kick in the teeth for anyone who thought tariffs wouldn’t affect domestic prices,” said Carl Weinberg, chief economist at High Frequency Economics, in an interview with Reuters. He called the report “a strong validation” of the Fed’s cautious stance.
Oxford Economics noted that rising margins suggest firms are no longer absorbing costs—heightening the risk of broader price pass-through to consumers.
Wall Street reacted sharply: major indices fell, the dollar strengthened, and Treasury yields rose. Markets had been optimistic about a September rate cut based on midsummer CPI data, but the PPI shock dampened those expectations.
The data presents a dilemma for the Fed, which has maintained its baseline interest rate steadily amid hopes for moderation in price rises. The PPI spike, however, casts doubt on the timing of rate cuts, suggesting policymakers may take a more cautious path until a sustained trend emerges.
July's PPI report signals a resurgence in inflationary pressures across the U.S. economy. With tariffs increasingly affecting both goods and services costs, businesses may soon pass those burdens onto consumers. The Federal Reserve, weighing its mandate to balance inflation and employment, is now likely to delay interest rate cuts until price gains clearly slow.
