The news jolting financial markets is the latest from the Federal Reserve’s favored measure of wholesale inflation. In response to July’s Producer Price Index (PPI) release, Dow Jones Industrial Average futures dropped a staggering 500 points at one point. The core PPI, excluding volatile food and energy prices, soared 3.7% YoY. That increase was well above the predicted consensus of 2.9%. This figure exceeded June’s core PPI of 2.6%, which is a worrisome development for the administration and the economy overall.
Including the core, the headline PPI jumped to 3.3% YoY, beating the consensus call of 2.5%. This increase is greater than June’s 2.4% YoY reading. Exacerbating the situation, the Trump administration’s national-level tariffs only went into full effect as of last week. Today, they are beginning to wield even more influence on wholesale prices in sectors far beyond the energy sector.
The Dow futures were just above unchanged at a gain of about 44,950. Instead, they crashed to 44,750 in the wake of the PPI release. This drop renewed investor fears about inflation and what it could mean for monetary policy and broader economic growth. The tariffs on the steel, aluminum and other industries that were targeted have already gone into effect prior to this week. Now their impacts are starting to make their way into the wholesale market.
Analysts list a number of factors fueling the increase in the PPI. Supply chain disruptions and increased production costs from tariffs are primary factors, for example. During the run-up to the tariffs, companies created a stockpile of products. Now, those inventories are growing out of their usefulness with prices skyrocketing. As a result, companies will find themselves under duress to transfer these expenses to consumers.
In a curious twist, the present inflationary pressures have some economists and investors sounding alarm bells just the same. They worry that sustained increases in wholesale prices could lead to higher consumer prices, affecting purchasing power and overall economic stability. And now, inflation is increasing pretty rapidly, too. The rumors abound as to what the Federal Reserve will do next on the interest rate front.