As with all the monthly inflation reports during Trump 1.0 and the trade policy revolution the president has launched, the …Continue reading →
As with all the monthly inflation reports during Trump 1.0 and the trade policy revolution the president has launched, the big question surrounding the new official release on American wholesale prices is how greatly tariffs affected the results. And although the monthly figures in the Producer Price Index (PPI) were much hotter than in recent months – and than most analysts were expecting – the answer to the tariff-related question is still “not much at best.”
This conclusion shouldn’t be all that surprising. Yes, it’s commonly contended that wholesale prices are strong predictors of future consumer prices (since these business costs are supposedly passed on regularly to consumers). But the PPI numbers simply haven’t cooperated with this claim (as I’ve explained previously) mainly because the main determinant of consumer inflation is usually consumer demand.
That is, when individuals and households have lots of money to spend, they’re likelier to be in a buying mood and therefore more likely to accept robustly rising prices, and less likely to pay this piper when they’re feeling economically stressed. And so far this year, the absence of high inflation (much less tariff-induced inflation) is saying loudly that consumers are pretty resistant to much pass through (and/or that that’s what businesses believe.
So it’s certainly noteworthy that the headline PPI indicator (called “final demand”) moved up sequentially in July by 0.94 percent – the fastest increase since February, 2024’s 1.45 percent. At the same time, February, 2024 was long before many thought Donald Trump would win reelection, much less jack up tariffs to this year’s extent.
And some more facts undermining the tariff-led inflation claims: Since President Trump’s first full month in office (February), this headline PPI number has risen by 0.91 percent. That’s only slightly faster than the 0.88 percent rate during the previous, pre-tariff-y February-July figure.
The tariff-led inflation story received another blow from the results for core PPI – which strips out costs for food and energy, as well as a logistics-related category called “trade services” (because they’re supposedly volatile for reasons unrelated to the economy’s fundamental inflation prone-ness).
Core final demand PPI advanced by 0.61 percent on month in July – its fastest pace since the 0.90 percent recorded in February, 2022. That’s when the economy was approaching peak Biden-flation.
But between this February and July, core whole sale prices increased by just 0.74 percent. That’s less than half the 1.51 percent climb during the previous, pre-tariff-y February through July period.
And so it’s gone for more granular PPI readings. There have been two trouble spots. First, final demand for core goods (which just strips out food and energy prices for volatility-related reasons) worsened much faster during this year’s February-July stretch (1.49 percent) than during that comparable period last year (0.85 percent).
But although the July increase of 0.38 percent for final demand core goods was the highest since the June, 2022 figure of 0.49 percent at peak Biden-flation, it wasn’t far out of line with the 0.35 percent increased reported this February and April’s 0.32 percent.
Ditto for final demand capital equipment. They did become 1.62 percent more expensive during this year’s February-July span as opposed to the 0.98 percent increase during that period last year. But the latest July increase of 0.29 percent was actually lower than June’s 0.33 percent result.
More encouragingly, the July 0.66 percent final demand goods increase was the biggest increase since February, 2024’s 0.94 percent.
But the PPI numbers for final demand goods from February-July, 2025 (up 0.10 percent) were pretty similar to those for those months last year (when they dipped by 0.17 percent).
Final demand wholesale inflation for personal consumption goods hit 0.54 percent in July – the biggest increase since January’s 0.62 percent. During the February-July months of 2025, however, these prices fell faster (by 0.96 percent) than during their 2024 counterparts (0.69 percent).
And even though the 0.61 percent increase in final demand core consumption goods was up by 0.61 percent on month in July (the worst such result since last September’s 0.63 percent), these prices are up just half as much under Trump 2.0 (0.71 percent) than under the last comparable Biden period (1.40 percent).
One possible reason that this year’s wholesale (and consumer) inflation data so far don’t look much worse than last year’s comparable numbers (and in many cases better) is that the economy is growing more slowly. Therefore, business and consumer demand have eased – and not for good reasons.
But the inflation-adjusted growth figures for the first half of this year (a 0.5 percent annualized dip in inflation-adjusted terms in the first quarter followed by a three percent annualized real increase in the second quarter) aren’t that much lower than their 2024 counterparts (up 1.6 percent and three percent annualized respectively).
At the same time, this year’s growth numbers have been whipsawed incredibly by Mr. Trump’s often changing actual and threatened tariffs – helping to place the economy in the “anyone’s guess” category I’ve described previously (e.g., here). If you look closely, today’s PPI figures leave it right there.
