Wholesale prices increased in July at the fastest pace since February, as economists closely monitor inflation data amid President Trump’s trade war. The 3.3-percent yearly increase puts the Federal Reserve in a tough position, as it faces pressure to keep prices low and employment as high as possible. The weak July jobs report showed worsening employment conditions, but upward-moving prices mean the Fed will have to negotiate stagflationary concerns in the short term. Matthew Martin, an economist with Oxford Economics, highlighted the dilemma the Federal Reserve faces in judging the risks to its dual mandate.
Cutting interest rates could help support the job market by easing borrowing costs for businesses, but it could also add fuel to inflation, which has lingered at an annual rate of 2.7% for two months since June. The Labor Department’s producer price index (PPI) advanced by 0.9% from June to July, marking a 3.3% increase on the year.
Economists attribute the sharp rise to tariffs and predict further increases in price levels. Nationwide economist Ben Ayers said businesses are being “increasingly squeezed” by tariff-related costs. Oxford Economics’ Matthew Martin pointed to cost pressures facing businesses and their reluctance to take them out of profits.
President Trump has been demanding rate cuts to spur the economy since the beginning of the year, seconded repeatedly by the head of the Federal Housing Finance Agency, William Pulte. Fed Governor Adriana Kugler resigned unexpectedly earlier this month, allowing Trump to temporarily appoint White House Council of Economic Advisers chair Stephen Miran to her position.
