US inflation trend: Producer prices remain flat in June; tariff effects may hit harder from August
The producer price index (PPI), which tracks prices before they reach consumers, was flat in June compared to the previous month, following a 0.3% uptick in May. On a year-on-year basis, wholesale prices rose 2.3%, the smallest increase since September and lower than economists had forecast, AP reported.
Core PPI—which excludes food and energy—was also unchanged from May and up 2.6% from June 2024.
The report came a day after the government said consumer prices rose 2.7% year-on-year in June, the sharpest rise since February.
That increase was attributed in part to tariffs raising prices on imported goods ranging from appliances to groceries. However, economists warned that wholesale and retail inflation do not always move in lockstep.
Bradley Saunders, North America economist at Capital Economics, flagged a 0.3% increase in core wholesale goods as a sign of tariffs beginning to bite. 'Furniture prices rose 1% from May and home electronics 0.8%,' Saunders noted, pointing out both are heavily import-reliant sectors.
Still, wholesale steel prices fell 5.5%, defying expectations despite Trump's 50% tariff on imported steel. Saunders suggested some companies may be drawing on pre-tariff inventories, but warned this buffer may soon run out. New 25% tariffs on Japanese and South Korean imports are set to kick in from August 1.
'We are not out of the woods yet,' he cautioned.
Retailers too are feeling the squeeze. Profit margins at auto retailers dropped 5.4%, suggesting dealers are absorbing some of the cost from Trump's 25% tariff on foreign cars and parts.
That aligns with Tuesday's consumer inflation report showing a dip in new vehicle prices.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, told AP this may not last. 'We doubt that auto retailers will continue to absorb the tariffs indefinitely,' he wrote, adding that prices could fall further before rebounding.
Wholesale prices offer early signals of inflationary trends that affect consumers. They also feed into the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) index.
After raising interest rates 11 times across 2022 and 2023 to combat post-pandemic inflation spikes, the Fed cut rates three times in 2024. But in 2025, it has paused further easing as it monitors the impact of Trump's trade policies. The president has also stepped up political pressure on the Fed to resume rate cuts, raising concerns about the central bank's independence.
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