US producer prices rise by most in three years on services

[WASHINGTON] US wholesale inflation accelerated in July by the most in three years, boosted by a surge in margins that indicates companies are not absorbing higher import costs related to tariffs.

The producer price index increased 0.9 per cent from a month earlier after no change in June, according to a Bureau of Labor Statistics report out Thursday (Aug 14). The measure rose 3.3 per cent from a year ago.

Services costs increased 1.1 per cent – the most since March 2022. Within services, margins at wholesalers and retailers jumped 2 per cent, led by machinery and equipment wholesaling. Goods prices excluding food and energy rose 0.4 per cent.

The report indicates companies are adjusting their pricing of goods and services to help offset costs associated with higher US tariffs, despite the softening of demand in the first half of the year.

The extent to which companies pass the burden from tariffs on to consumers will be key in defining the path of interest rates. While Federal Reserve officials generally expect import levies to push inflation higher in the second half of the year, they’re divided over whether it will be a one-time adjustment or more enduring.

With consumer price data earlier this week pointing to a milder pass-through in July, and the labour market now shifting to a lower gear, Fed officials are widely expected to lower borrowing costs when they meet next month. Though their goal is still to bring inflation closer to their 2 per cent target, they need to make sure the labour market remains healthy in the process. BLOOMBERG