U.S. wholesale inflation surged unexpectedly last month, signaling that President Donald Trump’s sweeping taxes on imports are pushing costs up and that higher prices for consumers may be on the way.
The U.S. Labor Department reported Thursday that its producer price index — which measures inflation before it hits consumers — rose 0.9% last month from June, the biggest jump in more than three years. Compared with a year earlier, wholesale prices rose 3.3%.
The numbers were much higher than economists had expected.
Prices rose faster for producers than consumers last month, suggesting that U.S. importers may, for now, be absorbing the cost of Trump’s tariffs rather than passing them on to customers. That may not last.
“It will only be a matter of time before producers pass their higher tariff-related costs onto the backs of inflation-weary consumers,” wrote Christopher Rupkey, chief economist at fwdbonds, a financial markets research firm.
Excluding volatile food and energy prices, so-called core producer prices rose 0.9% from June, the biggest month-over-month jump since March 2022. Compared with a year ago, core wholesale prices rose 3.7%, after a 2.6% year-over-year jump in June.
Wholesale food prices rose 1.4% from June, led by a 38.9% surge in vegetable prices. The price of home electronic equipment gained 5% from June. Both are heavily imported into the U.S.
Some aspects of Thursday’s report were puzzling, including a big jump in profit margins at retailers and wholesalers. Economist Stephen Brown at Capital Economics called the increase “to put it lightly, counterintuitive given the anecdotal evidence that firms are absorbing the lion’s share of tariff increases in margins.”
Trump’s tariffs have created considerable uncertainty for the U.S. economy, which could explain some seemingly contradictory trends. The president has negotiated trade agreements with several major partners, including the European Union and Japan, but details have not been published, leaving businesses unsure how to adjust prices.
The fallout from the tariffs has been delayed because many importers stockpiled products before the taxes took effect. Those inventories are now diminishing. U.S. courts are also hearing a challenge to Trump’s most sweeping tariffs that could strike them down.
The wholesale inflation report comes two days after the Labor Department said consumer prices rose 2.7% last month from July 2024, the same as the previous month and up from a post-pandemic low of 2.3% in April. Core consumer prices rose 3.1%, up from 2.9% in June. Both figures are above the Federal Reserve’s 2% target.
The new consumer price numbers suggest that slowing rent increases and cheaper gas are partly offsetting the impact of Trump’s tariffs. Many businesses are likely still absorbing much of the cost instead of passing it on to customers.
The producer and consumer inflation numbers are both issued by the Labor Department’s Bureau of Labor Statistics (BLS), which has drawn Trump’s ire. After a disappointing July jobs report, Trump fired the BLS director, accusing the bureau without evidence of rigging numbers for political reasons. He then nominated a partisan ideologue to replace her, raising fears of political interference in economic data relied on by investors, policymakers, businesses and the Federal Reserve.
Thursday’s report is likely to complicate decisions for the Fed. After an ominous July jobs report — which also showed hiring was much weaker than originally reported in May and June — the central bank was widely expected to cut interest rates next month to support hiring.
The Fed has drawn Trump’s ire for not cutting rates sooner. Under Chair Jerome Powell, it delayed rate cuts until better understanding the impact of Trump’s tariffs on inflation. “This report is a strong validation of the Fed’s wait-and-see stance on policy changes,” Carl Weinberg, chief economist at High Frequency Economics, wrote Thursday. “It will mean a markdown of market expectations for a September rate cut.”
Wholesale prices provide an early look at where consumer inflation may be headed. Economists also watch some components — notably health care and financial services — because they feed into the Fed’s preferred inflation gauge, the personal consumption expenditures index.
Personal Consumption Expenditures Price Index numbers for July are due Aug. 29.