Latest Producer Price Index numbers show a 0.9 percent increase, tariffs to blame: CEI analysis

July’s Producer Price Index (PPI) numbers show a 0.9 percent increase in final demand prices, up 3.3 percent over the past 12 months. CEI senior economist Ryan Young warns that this report is a sign of things to come for Trump’s tariffs’ effect on prices.

“Tariffs raise prices. Many of those price increases are still working their way through supply chains. That is why the Producer Price Index (PPI) is running hotter than the Consumer Price Index. It is a harbinger of things to come. It now looks much more likely that inflation will increase in the coming months, making the Federal Reserve’s job even more complicated.

“The Fed has a dual mandate of keeping both inflation and unemployment low. The problem is that it can only focus on one of those at a time, because of tradeoffs. An interest rate cut can stimulate the labor market, but at the tradeoff of higher inflation. Higher interest rates can fight inflation, but at the risk of an economic slowdown.

“The current trifecta of rising inflation, slow growth, and a softening labor market puts the Fed in a no-win scenario. President Trump is pressuring the Fed lower interest rates. But tariff fallout, like today’s PPI reading, makes it unwise for the Fed to do what he wants.

“Today’s report could also increase presidential pressure on the Bureau of Labor Statistics (BLS). Trump fired the previous BLS commissioner after a lackluster jobs report. Today’s PPI report is arguably worse news. Trump’s reaction could affect BLS’s ability to put out credible, non-politicized data.

“Bad economic news will keep coming for as long as the president keeps increasing tariffs. The easiest solution is ending those tariffs, rather than shooting the messengers at BLS or threatening the Fed’s independence.”