U.S. wholesale inflation surged unexpectedly in July, with the Producer Price Index rising 0.9% monthly and 3.3% annually—the sharpest increases since June 2022 and February 2025, respectively. The Bureau of Labor Statistics report released Thursday far exceeded economists’ forecasts of a 0.2% monthly gain and 2.5% annual increase.
The spike marks a dramatic reversal from June’s flat reading and signals that President Trump’s escalating tariffs are beginning to filter through the supply chain. More than three-quarters of the broad-based advance stemmed from services costs, which jumped 1.1%—the largest gain since March 2022. Final demand goods prices rose 0.7%, driven primarily by a 1.4% increase in food costs.
Tariff Impact Becoming Clear
The unexpected surge provides fresh evidence that Trump’s sweeping import duties are pushing producer costs higher, with economists warning that businesses will eventually pass these expenses to consumers. According to the Bureau of Labor Statistics, 30% of the services increase came from margins for machinery and equipment wholesaling, which spiked 3.8%.
“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.
The Yale Budget Lab estimates Trump’s 2025 tariffs have created an average effective tariff rate of 18.6%—the highest since 1933—potentially raising consumer prices by 1.8% in the short term.
Market and Fed Implications
Financial markets reacted sharply to the hotter-than-expected data, with stock futures falling as much as 0.6% and bond yields rising. The report complicates Federal Reserve monetary policy as officials prepare for their September meeting, where a 25-basis-point rate cut remains widely expected despite the inflationary pressures.
Core PPI, which excludes volatile food and energy prices, surged 0.6% monthly and 2.8% annually—both the largest increases since March 2022. Fresh and dry vegetables alone contributed significantly to the goods increase, soaring 38.9%, while diesel fuel jumped 11.8% and jet fuel rose 12.5%.
The wholesale inflation report comes two days after consumer price data showed a more modest 2.7% annual increase in July, suggesting businesses may still be absorbing tariff costs rather than immediately passing them through to shoppers
