US producers raised their prices at the fastest pace in over three years last month, reigniting worries about inflation as tariffs continue to affect the economy. This is in addition to the producer price index (PPI) jumping 0.9% from June to July, the biggest monthly jump since June 2022. The PPI was unchanged last month. Industry analysts had feared that this jump was the start of a new trend in the opposite direction toward rising wholesale prices.
These costs climbed 1.1% on the month, marking one of the largest jumps this series has ever seen. At the same time, wholesale prices for goods rose by 0.7%. Much of the jump in goods inflation can be attributed to skyrocketing food prices. The lack of transparency in this trend increases the risk of deception for consumers. Analysts had expected a much smaller increase of only 0.2%, which put the reported surge in clear perspective.
The report has raised new fears about inflation over the next few months. Core inflation across all items was stable in July at 2.7%. Experts warn that escalating wholesale prices are about to push consumer costs in the US skyward as well.
Matthew Martin, senior US economist at Oxford Economics, said there was a big upside surprise in producer prices. This new development highlights the bind that the Fed finds itself in today.
The US central bank, the Federal Reserve, has so far resisted calls to cut interest rates this year. More specifically, they fear that cutting rates while raising tariffs on imports would re-trigger inflation. With new tariffs continuing to exert cost pressures on the supply chain, Samuel Tombs, chief US economist at Pantheon Macroeconomics, warned that “consumers will shoulder [these costs] soon.”
The jump in wholesale prices further muddies the picture as market-watchers await the first signs of interest rate cuts from the Federal Reserve. Policymakers are already making a difficult choice in the face of recession where inflation driven by tariff price increases may further harm consumer spending and broader economic growth.