August 14, 2025
Welp – this new report may have just thrown a wrench into the plan to lower interest rates in September. That’s because this report is flashing a very bright warning light when it comes to inflation. But today the president saw it differently.
Maybe President Trump didn’t see today’s producer price index report. But I want to share it with you because the federal reserve sure saw it and they’re going to use it to make their interest rate decision next month. Why? Well this report found an unexpected significant spike in wholesale inflation….the largest monthly increase we’ve seen in three years.
Before I explain what that means – and why it’s important for your wallet and ultimately for your interest rates, let me explain what I’m talking about. You’re used to me covering the consumer price index report– like I did on Tuesday. The consumer price index measures price changes every month for goods and services for consumers – so what we’re experiencing when we buy food, and clothes, and electronics and pay for gasoline and healthcare. But the producer price index measures the price changes for the goods and services that producers and manufacturers are experiencing at the wholesale level. These are the people who sell that stuff to us. It’s important for us to understand what they’re paying because those costs usually impact how much we will ultimately pay. You can think of this PPI report almost like a crystal ball showing us what’s instore for our wallet in the next few months.
Ok – so here’s what today’s PPI report found. It found inflation for producers increased 3.3% between July of this year and July of last year. And increased almost a full percentage point between June and July of this year and here’s the thing — because of this week’s steady consumer price index report — economists were expecting the producer prices to be steady too. But they weren’t. They spiked.
Why? The numbers show it’s mainly the result of this prolonged inflation which we’ve seen for years — and….I’ll give you one guess what else is starting to show up in the report. I’ll give you 3 seconds to figure it out.
If you said tariffs – you get a cookie.
The report indicates president trump’s tariffs are costing producers and manufacturers more. For example — overall final demand for foods was up more than 4% between July this year and July last year (4.2%/yoy1.4%mom). But final demand for fresh and dry vegetables – which we do import — jumped almost 40% between June and July (+38.9% mom/+16.4% yoy) of this year. We also saw final demand for machinery and vehicle wholesaling spike almost 22% between July of this year and July of last year. (21.6% yoy/6.7%mom). We know there are tariffs on cars. We also saw price spikes on steel and aluminum prices, construction and equipment parts, and furniture. There are tariffs on all that stuff. But there is some good news in this PPI report when it comes to wholesale energy… final demand for gasoline was down by almost 14% between July of this year and July of last year – and was down almost 2% between June and July of this year. (-13.6%yoy/-1.8%mom)
Now here’s what’s interesting – this report found profit margins for businesses involved in wholesale retail trade also increased – their profits surged nearly 7% year over year and 2% between June and July of this year (6.9%yoy/2% mom). This indicates a few things. One – it shows that these producers are protecting and even increasing their profit margins. And two – when you put in into context with the rest of the report – which shows they’re paying more for these products — it just proves if they haven’t done it already – they are absolutely going to be passing these costs onto you to protect their profits.
Bottom line — inflation is not only sticking around – it’s going up it’s trending in the wrong direction. And as long as inflation is trending up – away from the fed’s 2% goal — economists say the federal reserve is less likely to cut rates. Of course we’re going to see several more reports before they make that decision in September. But if those reports mirror this one in any way – I wouldn’t get my hopes up on a rate cut.
Read the PPI report here.
Watch Trump talk about inflation here.
