Wholesale Inflation Shows Fastest Monthly Gain Since 2022

Tariffs are beginning to press up prices of imports. Cargo containers in Bayonne, N.J. Photo: Spencer Platt/Getty Images

Wholesale inflation came in much hotter than expected for July. While there’s some evidence that tariffs are pushing up businesses’ expenses on goods, services costs drove the big gains last month.

The producer price index for total final demand rose 0.9% in July, lifting the annual rate to 3.3%, the Bureau of Labor Statistics reported on Thursday morning. It was the fastest monthly increase since May 2022.

Economists forecast that prices would rise 0.2% after remaining flat in June relative to May, according to FactSet. Compared with a year ago, PPI was forecast to rise 2.4%, a pickup from the 2.3% gain in June.

July’s annual growth in wholesale prices was the largest 12-month increase since February, when the gain was 3.4%, the bureau reported.

Created with Highcharts 9.0.1PPI rose at the fastest rate since 2022.Source: Labor DepartmentNote: seasonally adjusted month-over-month​change in the index.

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The core PPI, which excludes prices for food, energy, and trade services, rose 0.6%, for a gain of 2.8% from a year earlier. That was the largest monthly increase since March 2022, when it rose 0.9%, the bureau reported. Core PPI was expected to notch annual growth of 2.9%, compared with 2.6% previously.

Thursday’s stronger-than-expected PPI data suggest that tariffs are not helping, but they’re not the only issue at play for wholesale price growth. Like with the consumer price index published Tuesday, services costs advanced more than goods on the month. Final demand for goods rose 0.7% month over month in July, up from the 0.3% pace in June.

Final demand for services, however, shot up 1.1% last month, reversing course after falling by 0.1% month over month in June. Within services, it was the 2% increase in trade services that pushed up the entire subindex. “This is a measure of corporate profits and suggests, possibly, that some companies are using the excuse of tariffs to boost prices for their own gain,” writes James Knightley, chief international economist at ING.

In fact, much of July’s unexpectedly robust PPI gains were driven by 2% expansion of retailers’ and wholesalers’ margins—as well as a 5.8% jump in portfolio management, writes Stephen Brown, deputy chief North America economist with Capital Economics.

The jump in margins is particularly perplexing, given that there’s evidence companies are absorbing the “lion’s share” of tariff impacts rather than immediately passing on the costs to consumers, Brown said. The surge in portfolio management, however, is likely due to the second-quarter stock-market rebound, he added, noting it’s unlikely to be an ongoing issue.

Still, there were signs that tariffs are having an impact, with the index for core goods rising by a larger 0.4% month over month. That’s the highest gain in over a year and a pickup from the 0.2% pace in June. And food prices surged by 1.4% last month. “Much of this is likely to pass through, at least to some extent, to consumer prices over the next month or two,” writes Stephen Stanley, chief economist at Santander. The prices of computers, home electronics, household furniture and appliances—items that are likely more vulnerable to tariff effects—rose sharply on the month.

Finished core goods prices, which exclude food and energy, rose 0.3% in July for the fourth consecutive month. Over the last six months, finished core goods prices have risen 3.5% at an annualized rate, writes John Ryding, chief economist at Brean Capital Economics. “This suggests that firms are passing through tariffs on input costs or raising prices in the face of diminished price competition (or both),” he said.

The fact that top-line figures in the July PPI data were stronger than expected and Tuesday’s CPI report was relatively soft still indicates that there’s more costs in the pipeline that need to work their way through, writes Clark Geranen, chief market strategist at CalBay Investments. “Businesses may soon start to reverse course and start passing these costs to consumers,” he said.

Many economists say that taken together, the latest PPI and the consumer price index data released Tuesday signal that the personal consumption expenditures price index will round to a 0.2% monthly gain in July. That will likely help keep the annual rate unchanged at 2.6%, writes Bank of America economists.

Core PCE, which also excludes food and energy, is expected to rise by 0.3% in July, likely boosted by the stronger portfolio-management fees. All said, this should lift the annual rate to 2.9% in July, up from June’s previous 2.8% pace.

The June PCE inflation data will be released on Aug. 29.

Write to Megan Leonhardt at megan.leonhardt@barrons.com