U.S. wholesalers saw higher costs than expected in July amid tariffs

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 Labor Department reported Thursday that its producer price index — which measures inflation before it hits consumers— rose 0.9 per cent last month from June, which was the biggest jump in more than three years. Compared with a year earlier, wholesale prices rose 3.3 per cent.

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 eating 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 per cent from June, biggest month-over-month jump since March 2022. Compared with a year ago, core wholesale prices rose 3.7 per cent after posting a 2.6 per cent year-over-year jump in June.

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Wholesale food prices rose 1.4 per cent from June, led by a 38.9 per cent surge in vegetable prices. The price of home electronic equipment gained five per cent from June. Both are heavily imported in the U.S.

But some aspects of Thursday’s producer price report were puzzling, including a big jump in profit margins at retailers and wholesalers.

Economist Stephen Brown at Capital Economics found the increase “to put it lightly, counterintuitive given the anecdotal evidence that firms are absorbing the lion’s share of tariff increases in margins.”

The wholesale inflation report two days after the Labor Department reported that consumer prices rose 2.7 per cent last month from July 2024, same as the previous month and up from a post-pandemic low of 2.3 per cent in April. Core consumer prices rose 3.1 per cent, up from 2.9 per cent in June. Both figures are above the Federal Reserve’s two per cent target.

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The new consumer price numbers suggest that slowing rent increases and cheaper gas are partly offsetting the impacts of Trump’s tariffs.

Many businesses are also likely still absorbing much of the cost of the duties instead of passing them along to customers via higher prices.

The producer and consumer inflation numbers are both issued by the Labor Department’s Bureau of Labor Statistics, which is already in Trump crosshairs.

After the BLS issued a disappointing jobs report for July, Trump fired the director of the BLS, groundlessly accusing the bureau of rigging the numbers for political reasons. Trump then nominated a partisan idealogue to replace her, raising fears of political interference in economic data that investors, policymakers, businesses and the Federal Reserve rely on to make decisions.

Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably measures of health care and financial services, flow into the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures, or PCE, index.