US wholesale inflation rose unexpectedly last month, signaling that President Donald Trump’s sweeping taxes on imports are pushing costs up and potentially leading to higher prices for consumers. The Labor Department reported a 0.9% increase in producer price index, the biggest jump in over three years, with core producer prices rising 3.7%.
The surprise move has economists warning that importers may soon pass on higher tariff-related costs to customers. “It will only be a matter of time before producers pass their higher tariff-related costs onto the backs of inflation-weary consumers,” said Christopher Rupkey, chief economist at fwdbonds.
Wholesale food prices rose 1.4%, led by a surge in vegetable prices, while electronic equipment prices gained 5%. However, some aspects of the report were puzzling, including a big jump in profit margins at retailers and wholesalers.
The uncertainty surrounding Trump’s tariffs has been creating contradictory trends, with businesses struggling to adjust their prices due to uncertainty about future tariff rates. The fallout from the tariffs has also been delayed as many importers stockpiled products before the taxes took effect.
The US courts are hearing a challenge to Trump’s most sweeping tariffs and could strike them down, which may further complicate decisions for the Federal Reserve. The Fed was expected to cut interest rates next month but may now reconsider due to the strong producer price report.
Wholesale prices can offer an early look at where consumer inflation might be headed, and economists are watching it closely as some of its components flow into the Federal Reserve’s preferred inflation gauge. The PCE inflation numbers for July are due out August 29.
Source: https://www.pbs.org/newshour/nation/u-s-producer-prices-surge-in-july-as-trump-tariffs-push-costs-higher