U.S. wholesale inflation may rebound in July, consumers face greater price pressure
The market expects that the U.S. wholesale inflation rate will rebound in July, indicating a weakening ability of businesses to absorb tariff costs, leading to greater price pressure on consumers. The Producer Price Index (PPI) for July is expected to rise by 2.4% year-on-year and by 0.2% month-on-month. Economists from Goldman Sachs and RSM US believe that tariffs will drive inflation upward, and consumers will experience significant price increases by the end of the year. Tariffs could reduce U.S. GDP by about 1% and raise inflation by 1 to 1.5 percentage points
According to the Zhitong Finance APP, the market expects signs of a rebound in the U.S. wholesale inflation rate in July, indicating that companies' ability to absorb high tariff costs is weakening and consumer price inflation pressures are approaching.
Economists surveyed by FactSet predict that the U.S. Producer Price Index (PPI) in July may rise by 2.4% year-on-year, slightly higher than June's 2.3%; the month-on-month growth is expected to be 0.2%, compared to flat in June. The core PPI, excluding food and energy, is expected to rise to 2.9% year-on-year, with a month-on-month increase of 0.2%. The U.S. Bureau of Labor Statistics will release the data on Thursday morning local time.
Research by Goldman Sachs economist Elsie Peng shows that as of June, U.S. companies had absorbed about 64% of tariff costs, but this proportion may drop to less than 10% in the coming months, with more costs being passed on to consumers. RSM US Chief Economist Joe Brusuelas expects the July PPI to rise by 0.3% month-on-month and 2.6% year-on-year, above market expectations, emphasizing that "producer prices often lead consumer price trends," and rising wholesale costs may further push CPI up in the future.
Although the July CPI released on Tuesday showed moderate performance, several Wall Street economists believe that the biggest impact of tariffs on inflation has yet to come. As the scope of tariffs expands, the effective tariff rate rises from about 3% at the beginning of the year to 18%, and companies are no longer willing to fully absorb costs, consumers will feel more significant price pressures before the end of the year. JPMorgan Chief U.S. Economist Michael Feroli expects tariffs could reduce U.S. GDP by about 1% and raise inflation by 1 to 1.5 percentage points.
Despite President Trump's criticism of Goldman Sachs for "exaggerating" the impact of tariffs and calling for CEO Solomon to consider replacing the relevant economists, several institutions, including JPMorgan, UBS, and BNP Paribas, expect tariffs to drive moderate inflation upward, with core inflation likely approaching 3.5% by the end of the year.
Short-term risks also include the upcoming expiration of the "duty-free threshold for imports under $800" policy on August 29, which could directly push up retail prices. Pantheon Macroeconomics estimates that this alone could raise the core inflation rate by an additional 1 percentage point.
However, most institutions believe that the extent of inflation increase will be limited (0.3%-0.5% per month) and mainly due to temporary shocks, which will not prevent the Federal Reserve from starting interest rate cuts later in 2025. But before that, rising prices may suppress consumer spending and drag down economic growth in the second half of the year.
The Blue Chip Economic Indicators August survey shows that the U.S. GDP growth rate in the second half of the year may average 0.85%, higher than the July forecast of 0.75%, as some previously pessimistic analysts adjusted their expectations for the impact of tariffs, believing that economic growth will rebound significantly in 2026
