Wholesale inflation in the U.S. rose sharply last month, raising concerns that rising import taxes are beginning to drive up costs and could soon lead to higher prices for consumers.
According to the Labor Department, the producer price index — which tracks inflation before it reaches consumers — jumped 0.9% from June to July, marking the largest monthly increase in over three years. Compared to a year earlier, wholesale prices increased by 3.3%, significantly higher than economists had predicted.
The data indicates that prices for producers rose more quickly than for consumers in July, suggesting that importers might still be absorbing the impact of tariffs introduced by President Donald Trump, rather than passing those costs directly to customers. However, that trend might not last much longer.
“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, a financial markets research firm.
When excluding volatile food and energy prices, core producer prices also rose 0.9% from June, the largest monthly increase since March 2022. On a yearly basis, core wholesale inflation hit 3.7%, up from 2.6% in June.
Notable increases were seen in wholesale food prices, which rose 1.4%, largely driven by a 38.9% spike in vegetable prices. The cost of home electronics, which are heavily imported, also climbed 5% over the same period.
However, parts of the report were puzzling to analysts, particularly a notable increase in profit margins for wholesalers and retailers. Stephen Brown, an economist at Capital Economics, described the margin growth as “counterintuitive,” given that anecdotal evidence suggests companies have been absorbing much of the added tariff costs.
Trump’s tariff policies have introduced economic uncertainty, partly due to ongoing trade negotiations with major partners like the European Union and Japan. Though agreements have been announced, details remain unclear, leaving businesses unsure about future tariff levels and how to adjust pricing strategies.
Importers had previously built up inventories ahead of the tariffs, which temporarily cushioned the impact, but those stockpiles are now declining. Additionally, a legal challenge to Trump’s broader tariffs is currently underway in U.S. courts, and a ruling could potentially overturn them.
This report on wholesale inflation comes shortly after the Labor Department reported a 2.7% increase in consumer prices for July compared to the year prior — unchanged from June and up from 2.3% in April. Core consumer prices rose 3.1%, up from 2.9% the previous month, both figures exceeding the Federal Reserve’s 2% target.
Lower gas prices and slower rent increases have helped offset some of the inflationary pressure caused by tariffs. Many businesses are still choosing to absorb the higher import costs, rather than passing them directly to consumers — at least for now.
Both the consumer and producer inflation data are published by the Bureau of Labor Statistics (BLS), which recently came under political scrutiny. Following a disappointing July jobs report, President Trump fired the BLS director, accusing the bureau of manipulating data for political purposes — a charge widely seen as baseless. He has since nominated a highly partisan replacement, raising concerns about potential interference in critical economic reporting used by investors, businesses, and the Federal Reserve.
The latest inflation data may complicate the Federal Reserve’s next steps. Following a weak July jobs report and downward revisions to hiring figures for May and June, markets had expected a rate cut at the Fed’s meeting next month to stimulate hiring. But with inflation ticking upward, the central bank may delay action.
Fed Chair Jerome Powell has held off on cutting rates so far, preferring to observe how tariffs are affecting inflation before adjusting monetary policy. “This report is a strong validation of the Fed’s wait-and-see stance on policy changes,” said Carl Weinberg, chief economist at High Frequency Economics. He added that the data will likely reduce expectations for a September rate cut.
Wholesale price data is often seen as an early indicator of where consumer inflation is heading. Economists monitor it closely because certain components, like healthcare and financial services, factor into the Federal Reserve’s preferred inflation measure — the Personal Consumption Expenditures (PCE) index. The PCE data for July is scheduled to be released on August 29.
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