EconoFACTS

August 14, 2025 | 09:30

Yes Virginia, There Is Some Inflation Out There

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Inflation? Is there some inflation out there?

Frankly, the first thought that came to mind when I saw the U.S. producer price report was .... "I think I need a stronger prescription for my contact lenses!" And that thought can be forgiven as the headlines broke... U.S. producer prices SURGED 0.9% in July alone, which is about 4x consensus and the most since March 2022. The three major components also felt stronger pressures brewing at the producer level....

-- goods +0.7% (food +1.4%, energy +0.9%)

-- services +1.1% (trade services +2.0%, transportation/warehousing +1.0%)

-- construction +0.6%

Excluding the typically volatile food & energy components ALSO saw a 0.9% surge. Prices excluding food, energy and trade services jumped 0.6%. From a year ago, headline PPI is up at a 5-month high of 3.3%, with components including food and services up over 4%.

This series is volatile during the best of times, but this is a little difficult to ignore. This captures the costs at the producer level, which could theoretically flow through to the consumer, unless producers are willing to eat all of the costs (tariffs), which is doubtful. Is this the sign that the Fed is waiting for? How does one explain the inflation pressures that are starting to show up, at both the producer and consumer levels? Are the data wrong? Incorrectly calculated? Not enough data to make a good representation of what is happening out there? No one knows with 100% certainty, and it will be tough to prove. Though there will be questions raised about the validity of the data, this emboldens those who are less dovish on the Fed that a September cut is not a done deal. Note that the latest UI claims data also showed improvement in the latest week.

What now? Keep data watching! There will be two more reports on import prices, one more CPI, one more PPI, and one more PCE deflator to watch. And a couple of ISMs. Watch them all .... don't just watch one report. Never. Note that there is upside risk for the July core deflator, after what we saw this week. That comes out on August 29. It will be very interesting to see what happens.

Can't imagine the pressure on Fed Chair Powell ahead of the Jackson Hole gathering next week.....

Table 1 - United States — Producer Price Index

(month/month % change)

Source: BMO Economics, Haver Analytics