Skyrocketing U.S. Producer Prices in July, Resulting from Trump's Tariffs Boosting Expenses
The courts are currently hearing a challenge to President Donald Trump's most sweeping tariffs, which could potentially have significant implications for the economy. Meanwhile, the Labor Department's Bureau of Labor Statistics (BLS) has released a new report on consumer prices, shedding light on the current state of inflation in the U.S.
According to the report, the price of home electronic equipment gained 5% from June, a figure that is noteworthy given that these items are heavily imported into the U.S. The July jobs report, however, showed hiring was weaker than originally reported in May and June, complicating decisions for the Federal Reserve (Fed).
The new report is likely to mean a markdown of market expectations for a September rate cut, as the Fed had been delaying rate cuts until the impact of Trump's tariffs on inflation is better understood. However, the new consumer price numbers suggest a partial offsetting of the impacts of Trump's tariffs due to slowing rent increases and cheaper gas.
Wholesale prices, on the other hand, tell a different story. Compared with a year earlier, wholesale prices rose 3.3%, and 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. This indicates that U.S. importers may currently be absorbing the cost of Trump's tariffs, as prices rose faster for producers than consumers last month.
Wholesale food prices also saw a significant increase, with vegetables leading the way in a 38.9% surge from June. This rise in wholesale prices can offer an early look at where consumer inflation might be headed.
The Fed Chair, Jerome Powell, has acknowledged that tariffs are "clearly pushing up prices," but the inflationary impact has been gradual and somewhat muted so far. This is partly because companies delay passing higher costs to consumers to maintain competitiveness, and because tariffs take time to work through the economy.
The White House officials have argued that foreign exporters bear much of the added tariff cost rather than U.S. consumers, and current data even shows some declining prices for imported goods. However, modest rises in prices have appeared in clothing, home furnishings, and appliances.
The ongoing uncertainty surrounding tariff rate changes and potential for further trade conflicts persists as a risk to economic growth and inflation dynamics. In fact, the director of the BLS was fired by Trump after the issuance of a disappointing jobs report, groundlessly accusing the bureau of rigging the numbers for political reasons.
Looking ahead, the PCE inflation numbers for July are due out on Aug. 29, which will provide further insight into the current state of inflation in the U.S. Despite the gradual impact of tariffs on consumer prices so far, the Federal Reserve and economists continue to monitor tariffs as a significant but controlled factor influencing inflation trends in the U.S.
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