US producers raised their prices at the fastest pace in more than three years last month, as new import tariffs introduced by President Donald Trump added pressure to supply chains.
According to the Labor Department, the Producer Price Index (PPI) – which tracks the prices businesses receive for their goods and services – climbed 0.9% between June and July. That marked the sharpest monthly increase since June 2022 and far exceeded analyst forecasts of just 0.2%.
The unexpected jump is fuelling concerns that inflationary pressures could build again, even as consumer price growth remained steady at 2.7% in July.
Tariffs Push Up Business Costs
The surge reflects the growing impact of tariffs on US companies. Since taking office, President Trump has imposed new levies on a wide range of imported goods, raising the average effective tariff rate sharply.
While the administration argues that tariffs boost government revenues and give American manufacturers a competitive edge, economists caution that the reality is more complicated. Expanding domestic production to replace imports is costly, meaning higher expenses for businesses – and eventually, higher prices for consumers.
Sectors heavily exposed to tariffs, such as home furniture and apparel, saw some of the sharpest price rises in July. Food prices also contributed significantly to the overall increase.
Services and Goods Both See Increases
The July data showed price hikes across both goods and services:
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Services PPI rose 1.1%, covering areas such as warehousing and financial advice.
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Goods PPI climbed 0.7%, with food accounting for nearly half of that rise.
These broad-based increases suggest tariffs are having a ripple effect throughout supply chains.
A Dilemma for the Federal Reserve
The inflationary spike complicates calls for the Federal Reserve to lower interest rates, as President Trump has repeatedly demanded. The Fed, which operates independently of the White House, has so far resisted cutting rates in 2025.
On one hand, weak job growth and subdued consumer inflation have increased pressure on policymakers to ease monetary policy. On the other, higher wholesale prices point to renewed inflation risks if borrowing costs are reduced too soon.
Treasury Secretary Scott Bessent this week urged the Fed to cut its benchmark lending rate by 0.5 percentage points at its September meeting. But economists say the PPI data underscores the balancing act the central bank faces.
“The large upside surprise in producer prices highlights the dilemma the Federal Reserve faces,” said Matthew Martin, senior US economist at Oxford Economics. “Inflation is further from the Fed’s target than the unemployment rate and is likely to climb further over the coming months.”
Outlook
The July wholesale price jump signals that tariffs are feeding directly into higher costs for businesses – costs that are likely to filter down to consumers. With producer inflation now running at its fastest pace in over three years, the Federal Reserve faces a tough choice: cut rates to support growth, or hold steady to prevent a new inflation wave.
For now, investors will be watching the Fed’s September meeting closely, as policymakers weigh economic weakness against stubborn cost pressures.
