The Producer Price Index was unchanged in June, according to a July 16 report from the U.S. Bureau of Labor Statistics.
In June, a 0.3% advance in prices for final demand goods offset a 0.1% decrease in the index for final demand services.
“Tariff passthrough is visible in today’s PPI data, but producer price inflation overall remains damper than many expected just a few months ago when the tariffs started rolling out,” said Nationwide Financial Markets Economist Oren Klachkin, in a statement. “We still think the bulk of the tariff pass-through is ahead of us, likely to occur over the summer and fall. However, with many strategies at companies’ disposal, the pass-through may be lower than initially anticipated.”
Klatchin offered the following analysis:
Tariff passthrough is visible in today’s PPI data, but producer price inflation overall remains damper than many expected just a few months ago when the tariffs started rolling out. We still think the bulk of the tariff pass-through is ahead of us, likely to occur over the summer and fall. However, with many strategies at companies’ disposal, the pass-through may be lower than initially anticipated. Furthermore, tariffs are not the only factor affecting inflation as slowing demand, high uncertainty, continuing services disinflation, and a weaker dollar obscure the levies’ impacts on the headline data.
Headline PPI was flat in June, coming in under consensus expectations after a 0.3% rise in May (revised from 0.1% previously). Core PPI was also unchanged last month. In the details, a 0.3% rise in final demand goods was offset by a 0.1% in final demand services. Tariff impacts are visible in the sectors exposed to the levies.
The PPIs for trade industries shed light on how tariffs are affecting company margins. In short, some industries command pricing power while others look to be absorbing the levies. This story will continue to play out in H2 2025 as companies implement strategies to cope with the tariffs. To recall, we expect the current overall effective tariff rate to remain in place going forward.
With the CPI and PPI data in hand, we are now tracking a 0.3% gain in headline PCE and a 0.2% gain in core PCE prices for June. Core PCE y/y inflation stayed steady in June based on this estimate, but the Fed will continue to stay on the sidelines this month. Some policymakers have called for rate cuts as soon as this month, but we think the bulk of them, including Chair Powell, want to maintain a wait and see approach. We see them cutting rates later this year once the inflation threat begins to pass and the jobs market weakens more noticeably.
