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US wholesale prices jumped in July, rising 3.3 per cent from a year earlier, in the latest signal that President Donald Trump’s tariffs are seeping through to the American economy.
The rise in the Producer Price Index, which tracks what domestic US producers charge for their goods and services, was the biggest jump since February.
The reading from the Bureau of Labor Statistics was well above June’s 2.4 per cent annual gain and the 2.5 per cent rise expected by economists polled by Bloomberg.
The figures suggest that despite muted inflation to date in consumer prices, the levies the president has imposed on US trading partners are driving an increase in prices further up the supply chain.
“Tariffs are causing businesses to raise the prices they charge each other, which will show up in higher consumer prices over time,” said Bill Adams, chief economist at Comerica Bank.
Processed goods, which include fuel and materials used in manufacturing and construction, rose 2.1 per cent over the 12-month period, the biggest jump since February 2023.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the rise “shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet”.
Separate data earlier in the week showed that annual consumer price inflation held steady at 2.7 per cent in July, defying expectations of a rise to 2.8 per cent.
Analysts noted that much of the gains in Thursday’s figures were driven by an increase in margins for wholesalers and retailers and a jump in the sub-index tracking charges from fund managers.
The core index, which strips out the effects of volatile food, energy and trade prices, rose 2.8 per cent, ahead of expectations and up from a 2.5 per cent gain in July.
Thursday’s data complicates the case for the US Federal Reserve as it weighs whether to lower interest rates at its September meeting — as demanded by Trump. A rate cut would help the slowing labour market but risks worsening inflation.
The dollar and short-term Treasury yields rose, as traders marginally reined in their expectations for Fed interest rate cuts. The two-year Treasury yield, which is sensitive to rate expectations, rose 0.07 percentage points to 3.74 per cent.
The probability of a quarter-point cut at next month’s Fed meeting — which was fully priced in by swaps markets before the PPI figures — fell slightly to about 92 per cent.
“The report is another pebble on the scale against a rate cut at the Fed’s September meeting,” said Adams. “However, upcoming jobs data will weigh more heavily on the Fed’s next decision than this inflation report.”
The dollar was up 0.5 per cent against a basket of peers, while the S&P 500, after opening lower, was roughly flat in afternoon trading.
Thursday’s figures come days after Trump picked EJ Antoni, a loyalist from the rightwing Heritage Foundation, to head the BLS, after firing his predecessor for a weak jobs report that the president claimed was “rigged”.
“The market response is right — this isn’t great data — but it is so trivial compared to jobs, to rents, to CPI. It is a minor data point,” said Peter Tchir, head of macro strategy at Academy Securities. “Still, if I were the person who produced the report, I would probably be dusting off my resume.”
