The U.S. Producer Price Index (PPI) experienced its largest monthly increase in three years during July, rising 0.9% compared to the previous month.
The Bureau of Labor Statistics reported Thursday that this jump far exceeded economists’ expectations of just 0.2% growth, while the annual inflation rate at the wholesale level surged to 3.3%, representing the highest 12-month increase since February and well above the Federal Reserve’s 2% target.
More than three-quarters of July’s wholesale price surge originated from the services sector, which experienced a 1.1% monthly increase, the largest advance since rising 1.3% in March 2022.
Machinery and equipment wholesaling margins spiked 3.8% in July alone, accounting for approximately 30% of the monthly rise in final demand services. Additional significant increases occurred in portfolio management services, securities brokerage services, travel accommodation services, automobile retailing, and truck transportation of freight.
Final demand goods prices increased 0.7% in July, driven by sharp increases in specific categories heavily impacted by trade policies. The most dramatic surge occurred in fresh and dry vegetables, which experienced a 38.9% price spike.
Energy costs also played a substantial role, with diesel fuel prices jumping 11.8% in July, accounting for more than half of the monthly price increase for processed goods destined for intermediate demand. This surge in diesel prices has particular significance for transportation costs across the supply chain.
Raw milk prices climbed 9.1%, responsible for over 30% of the increase in prices for unprocessed goods, while other agricultural commodities including meat, jet fuel, nonferrous scrap, and eggs also experienced notable increases. However, gasoline prices provided some relief by declining 1.8%, and certain processed food items like prepared poultry saw significant decreases.
The core Producer Price Index, which excludes volatile food, energy, and trade services, rose 0.6% in July, the largest monthly increase since March 2022. On an annual basis, core PPI jumped to 2.8%, maintaining levels well above the Federal Reserve’s comfort zone.
Economic analysts are increasingly attributing the wholesale price surge to President Trump’s comprehensive tariff strategy, which has imposed substantial duties on imports from various countries. The current average tariff rate on imports has reached 18.6%, marking the highest level since 1933, according to the Yale Budget Lab.
