The Producer Price Index could signal higher prices for consumers

Like Midwest humidity, inflation is starting to seep into the cracks.

July’s Producer Price Index, a measure that tracks the average change in prices companies pay to wholesale suppliers, increased the most month to month since June 2022, jumping 3.3% YoY, CNN reported. That was a surprise, as economists Bloomberg polled forecast a rise of only 2.5%.

Core PPI, which removes volatile food and energy prices, increased by 0.9%, when Dow Jones analysts had predicted it would climb only 0.3%.

The PPI news follows a Consumer Price Index report released earlier this week that showed consumer prices rose slightly less in July than economists expected. This indicates that while shoppers haven’t felt the price squeeze yet, inflation is “coursing through the economy,” Chris Zaccarelli, Northlight Asset Management’s chief investment officer, told CNN.

So it looks like the companies that promised to try to absorb most of the costs of tariffs have been sticking to their word…for now. Companies had also stockpiled inventory after Trump’s “Liberation Day” tariff announcement, which might be delaying rising costs as they work through those reserves. But that cache won’t last forever, and the PPI shows time might be running out.

Most of the inflation companies experienced came from more expensive service providers, machinery and equipment costs, and higher wholesale food prices, according to the PPI. The aluminum, copper, wood, and steel tariffs disproportionately impact industrial sectors, and service providers are having to raise prices to cover the cost of those materials. On the food side, tariffs on imports from Mexico are driving up prices on agricultural products like fresh vegetables, whose prices rose 38.9% compared to June—the most since 2022, per CNN.

While the CPI and the jobs report are some of the Fed’s go-to gauges when weighing interest rate cuts or increases, a higher PPI is usually seen as an indicator of looming consumer inflation.

“Businesses may soon start to reverse course and start passing these costs to consumers,” Clark Geranen, chief market strategist at CalBay Investments, told CNBC.