#CreatorPad A report released by the U.S. Bureau of Labor Statistics (BLS) on Thursday shows that wholesale prices surged in July, exceeding expectations, boosted by soaring profit margins, which may indicate that inflation remains a threat to the U.S. economy.
The Producer Price Index (PPI), a leading indicator of inflation, recorded a month-on-month increase of 0.9% in July, far exceeding the market expectation of 0.2%, marking the largest monthly increase since June 2022; the year-on-year growth rate was 3.3%, the highest growth rate since February, well above the Federal Reserve's 2% inflation target.
Service inflation is the main driver of the overall PPI increase, with service prices rising by 1.1% in July, also the largest increase since March 2022. Trade service profit margins increased by 2%, related to the ongoing implementation of Trump's tariff policy, indicating that businesses have not absorbed the rising import costs associated with tariffs. The 30% increase in service prices is attributed to a 3.8% month-on-month increase in wholesale prices for machinery and equipment.
The report shows that despite weak demand in the first half of the year, businesses are adjusting the pricing of goods and services to help offset costs associated with the U.S. tariff increases. How much of the tariff costs businesses pass on to consumers will be a key factor influencing the direction of future interest rates.
The unemployment data released simultaneously shows that the number of initial jobless claims in the U.S. unexpectedly fell last week. For the week ending August 9, the number of initial jobless claims decreased by 3,000 to 224,000, lower than the expected 228,000 and the previous value of 227,000. Additionally, the number of continuing jobless claims fell to 1.95 million. For the past few months, this number has hovered around the highest levels since 2021, indicating that many unemployed Americans are finding it difficult to find work.
Due to the economic uncertainty brought about by Trump's policies, especially the tariff policy, businesses have reduced the number of new hires. However, the relatively low number of initial claims suggests that employers are not laying off workers on a large scale.
Although the PPI is less closely watched than the Consumer Price Index (CPI), it provides important information about pricing in the supply chain. These two indicators together form the data foundation for the Personal Consumption Expenditures Price Index (PCE) from the Department of Commerce — PCE is the Federal Reserve's preferred inflation forecasting indicator and will be updated later this month.
Earlier this week, the July CPI report was largely in line with expectations, after which the market was almost certain that the Federal Reserve would lower the key interest rate at its September meeting. Following the release of the latest U.S. economic data, traders reduced their bets on a rate cut by the Fed in September.
Since the Trump administration implemented the highest levels of U.S. tariffs in decades, inflation has risen, but not to the extent predicted by many economists earlier this year. If there is decisive data that can overturn the view that 'tariffs only cause temporary inflation,' it would confirm the concerns of Federal Reserve Chairman Powell, thereby delaying any interest rate cuts.
Meanwhile, some analysts are still downplaying the significance of last month's weak employment data, believing that the slowdown in the labor market is due to a reduced labor supply caused by Trump's immigration policies. If this is true, then Powell's decision to hold steady is correct, as cutting interest rates would have no effect on the weakness of labor supply.