US Producer Price Index Rises 0.9% in July…Impact of Trump Tariffs

Korea Economic Daily

Summary

The US Producer Price Index (PPI) climbed 3.3% year-on-year in July, surpassing market expectations.
President Trump's tariff policies have raised wholesale prices, which could in turn affect consumer prices going forward.
The sharp PPI rise led to a modest uptick in short-term Treasury yields and a decline in expectations for a rate cut.

Up 3.3% Year-on-Year

Slight Decline in Rate Cut Probability

The US Producer Price Index (PPI) surged in July. Analysts attribute the rise in wholesale prices to the effect of tariff policies implemented by President Donald Trump.

According to the US Department of Labor on the 14th (local time), the July PPI, which reflects wholesale prices, increased by 3.3% from the same period last year. Compared to the previous month, it rose by 0.9%. This marks the largest monthly increase since February. The figure significantly exceeded the 2.5% increase estimated by Bloomberg experts.

The core PPI, which excludes the volatile food and energy sectors, climbed 2.8% from a year earlier. From June, it increased by 0.6%, the largest jump since March 2022, when it was 0.9%. Since producer prices are reflected in final consumer prices with a certain time lag, the PPI is regarded as a leading indicator for consumer inflation.

By sector, the price index for machinery and equipment wholesale jumped 3.8% from the previous month. The final demand goods price in July rose by 0.7% month-on-month, marking the highest increase in six months since January. Food prices went up by 1.4%, contributing 40% to the overall rise in goods prices. Among foods, prices for fresh and dried vegetables soared 38.9%.

The previously announced Consumer Price Index rose by 2.7%, staying roughly the same as in June. The Financial Times (FT) noted, "Despite the cooling in consumer inflation, tariffs imposed by the United States are fueling supply chain price increases." Chris Zaccarelli, CIO of NorthLight, said, "Even if consumers haven't yet felt the impact, this shows that inflation is moving throughout the economy."

With the PPI surpassing market expectations, short-term Treasury yields edged up. Expectations for a US interest rate cut have weakened somewhat. According to Chicago Mercantile Exchange (CME) FedWatch, as of 10 a.m., the probability of the Fed cutting rates by 0.25 percentage points next month stood at 92.5%.

By Myung-Hyun Han wise@hankyung.com