PPI report shows biggest surge in three years. Here’s what that says about inflation.

Authors: Megan Cerullo

Publisher:

CBS News

Published: 8/14/2025

Language:English

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Aura Windfall

Good morning norristong_x, I'm Aura Windfall, and this is Goose Pod, created just for you. Today is Thursday, August 21st. It’s a pleasure to be with you.

Mask

I'm Mask. We're here to dissect the latest economic earthquake: the new PPI report, which is showing the biggest surge in three years. We’re going to talk about what this really means for inflation, beyond the headlines.

Aura Windfall

Let's get started. The numbers that came out were truly striking. The Producer Price Index, which tracks prices for businesses, jumped 0.9% in July. That wasn't just a small beat; it completely dwarfed the 0.2% increase economists were expecting. It’s a significant moment.

Mask

Significant is an understatement. It's a market shock. This is the largest wholesale inflation jump since June of 2022. While everyone was debating if tariffs would ever have a real bite, this report is the first sign of blood in the water. The supply chain is finally screaming.

Aura Windfall

And what I know for sure is that when the supply chain screams, consumers eventually feel that pain. Bill Adams from Comerica Bank put it perfectly, saying these are costs that "will show up in higher consumer prices over time." It’s a ripple effect heading our way.

Mask

Exactly. For months, importers have been playing games—preordering inventory, eating the costs to protect their market share. They created a buffer, a facade of stability. But that's over. Their ability to absorb these tariff costs is waning, and now the dam is breaking. Prices have to go up.

Aura Windfall

It's fascinating because this comes right after the Consumer Price Index, the CPI, came in a little cooler than expected. So we have these two opposing signals. But the PPI is a forward-looking indicator, isn't it? It’s like seeing the wave before it hits the shore.

Mask

It's the canary in the coal mine. The CPI is what you paid for a gallon of milk yesterday. The PPI is what the dairy farmer is paying for feed, fuel, and bottling today. The writing is on the wall for higher consumer prices tomorrow. The market is just slow to read it.

Aura Windfall

Let’s talk about where these increases are coming from. It’s not just one area. The report indicates broad-based hikes in things like coffee, furniture, appliances, and electronics—many of which are heavily imported and directly in the crosshairs of these new tariffs. It’s a very clear pattern.

Mask

But the most insane number, the one that should be a massive red flag for everyone, is vegetables. Wholesale vegetable prices surged by a staggering 38% in a single month. Not 3.8%, but thirty-eight percent. That's not a price adjustment; that's a system failure.

Aura Windfall

A 38% jump is almost hard to comprehend. Food economists are pointing to a perfect storm of factors. Tariffs are a suspect, of course, because importers of perishable goods can't stockpile them. But they also mention weather, supply chain blockages, and even potential labor shortages.

Mask

It’s a convenient smokescreen. When a number is that far outside the norm, you can’t just blame the weather. Sweetgreen is already citing tariffs for its profit decline. Over a third of our fresh vegetables are imported. This is a direct hit from tariff policy, plain and simple.

Aura Windfall

It feels like this is a pivotal moment. For so long, the debate was abstract, but now we're seeing tangible numbers that connect policy directly to the prices businesses are paying. The truth of the situation is finally bubbling to the surface, and it’s hotter than anyone expected.

Aura Windfall

To truly understand this moment, I think it helps to look back. The story of tariffs in the United States isn't new; it has evolved over centuries. It’s a tool that has been used in very different ways throughout our history, hasn't it? It’s a powerful lesson in context.

Mask

It’s a weapon, and it’s been aimed at different targets. From 1790 to 1860, it was purely a cash grab—the "Revenue Period." Tariffs were the government's primary funding mechanism, swinging from 20% to as high as 60%. It was about filling the coffers, nothing more.

Aura Windfall

Then came what historians call the "Restriction Period," from the Civil War until 1933. The purpose shifted from revenue to protectionism, to wall off domestic industries from foreign competition. The average tariff on dutiable imports shot up to around 50%. It was about building an economic fortress.

Mask

A fortress with deep moats. And since 1934, we’ve been in the "Reciprocity Period," using trade agreements to lower barriers, not raise them. The entire post-war global economy was built on that idea. The recent tariff strategy is a complete reversal of 90 years of economic doctrine. It's a disruption.

Aura Windfall

And in the middle of this disruption is the Federal Reserve, which has to navigate the consequences. The Fed operates under what's known as its dual mandate. For anyone listening, it’s a beautiful and simple mission: keep prices stable and employment at its maximum. It’s about creating a healthy economic environment for everyone.

Mask

A simple mission that's impossible to execute perfectly. Price stability means a 2% inflation target. Maximum employment is a vague goal with no hard number. These two goals are often in direct conflict. To fight inflation, you raise rates and slow the economy, which costs jobs. It’s a constant trade-off.

Aura Windfall

That’s the essential tension, isn't it? As former Chair Powell said, they are focused on fostering a strong labor market while steadfastly seeking that 2% inflation rate. Usually, a healthy economy with low inflation creates jobs. But sometimes, as we saw in the late 70s, you get both high inflation and high unemployment.

Mask

And that’s when the Fed had to bring down the hammer. They jacked up interest rates, triggered recessions, and crushed inflation at the cost of millions of jobs. It was brutal, but it reset the system. The question now is whether today's tariffs are creating a new, unavoidable conflict for the Fed.

Aura Windfall

And the 2025 tariffs are not a small matter. We're talking about an average effective U.S. tariff rate of 22.5%, the highest it has been since 1909. This isn't a surgical strike; it’s a fundamental shift in the cost of doing business and living.

Mask

The numbers are staggering. All the 2025 tariffs combined are projected to reduce U.S. GDP growth by nearly a full percentage point this year alone. In the long run, our economy could be permanently 0.6% smaller. That's about $160 billion in lost output annually. It's a self-inflicted wound.

Aura Windfall

What I think gets lost in these big numbers is the impact on real people. Tariffs are a regressive tax. They hurt lower-income households the most because a larger portion of their income goes to essential goods. The price of clothing is expected to rise by 17%, food by nearly 3%.

Mask

The per-household cost is estimated at an average of $3,800. For a family in the second-lowest income bracket, that's an annual loss of about $1,700. For the wealthiest, it’s over $8,000. But as a percentage of income, the burden is heaviest on those who can least afford it.

Aura Windfall

It's a powerful reminder that economic policy is never just about numbers on a spreadsheet. It's about the tangible reality of people's lives, their ability to afford groceries, clothes for their children, and transportation. The background here is crucial for understanding the stakes of today's PPI report.

Mask

This brings us to the core of the conflict. The data is causing a civil war among economists and policymakers. On one side, you have the administration, with figures like Joseph Lavorgna at the Treasury, declaring that tariffs are not inflationary and that, quote, "almost every economist has gotten it wrong."

Aura Windfall

That's such a strong statement. It suggests a fundamental disagreement about how to even interpret the data. Lavorgna’s perspective seems to be that mainstream economists are blinded by political bias, preventing them from seeing the reality that, in his view, inflation has remained muted despite the tariffs.

Mask

He's not entirely wrong. For a while, the aggregate data was muted because companies were absorbing the costs. But this PPI report blows that argument out of the water. Now, even the Federal Reserve is divided. You have Governor Waller favoring a rate cut, believing the tariff impact is limited.

Aura Windfall

And on the other hand, you have New York Fed President John Williams urging caution, saying it's too early to know the full impact. It’s a genuine split right at the heart of our central bank. They're looking at the same numbers and coming to completely different conclusions about the path forward.

Mask

This is where the divergence between the PPI and CPI becomes the main battleground. The PPI for final demand in June rose 2.3% year-over-year, while the CPI rose 2.7%. The administration points to the lower PPI and says, 'See? No problem.' But they're ignoring the underlying mechanics.

Aura Windfall

The truth is, they measure different things. The CPI is heavily weighted towards shelter costs—about 33% of the index—which have been high. The PPI has a minimal weighting for shelter. This methodological difference explains much of the gap and can create a false sense of security about inflation.

Mask

It understates the risk. It's a communication failure. The milder PPI rate is based on producer costs *before* they are passed on to consumers. When you see energy and construction costs rising in the PPI, it’s a guarantee they will eventually show up in the CPI. The gap will close.

Aura Windfall

And this all comes at a time when the Fed is, by its own metrics, incredibly close to achieving its goals. Unemployment is at 4%, and inflation is at 2.6%—just a little over their 2% target. They are walking a tightrope, and this tariff-driven PPI surge is like a sudden gust of wind.

Mask

This is the dilemma. Do they cut rates to support the labor market, as Waller wants? Or do they hold firm—or even consider a hike—to fight the coming wave of inflation hinted at by the PPI? Any move they make will be criticized. They are caught between their mandate and a trade war.

Aura Windfall

And the impact of this uncertainty is already showing up in how people feel. Consumer sentiment just plunged to a nearly three-year low. What I know for sure is that an economy runs on confidence, and right now, people are worried. There's a palpable "tariffs angst" settling in.

Mask

It's not just angst; it's expectation. Twelve-month inflation expectations are at their highest level since 1981. People are bracing for higher prices, which can become a self-fulfilling prophecy. If everyone expects inflation, businesses will raise prices and workers will demand higher wages, creating an inflationary spiral.

Aura Windfall

It's interesting, though, that before this July surge, the March PPI report actually showed a decline, the first since October 2023. It was driven by a big drop in gasoline and wholesale food prices. It shows just how volatile and noisy this data can be month to month.

Mask

That volatility is what the 'don't worry' crowd clings to. But the trend is undeniable. As Michael Hanson at J.P. Morgan said, there is "clear evidence that prices of a number of durable goods are being passed through to consumers." The argument that businesses would just absorb all these costs is dead.

Aura Windfall

J.P. Morgan’s research frames it so clearly: tariffs are a "tax on imports" that "nearly always falls on domestic sellers and consumers." It’s not a tax on foreign countries; it’s a tax on us. And businesses are caught between raising prices and losing market share. It’s an incredibly difficult position.

Mask

It's a brutal choice, but it's basic economics. The pass-through to consumers is nearly one-to-one. This creates that nightmare scenario for the Fed. Tariff-driven inflation could force them to keep policy tight, meaning unemployment stays higher for longer, all to fight a fire the government itself started.

Aura Windfall

That’s the dilemma in a nutshell. How do you use your tools to cool inflation when the heat is coming from a source completely outside of your control? It challenges the very foundation of what the central bank can effectively manage in this new, unpredictable global trade environment.

Aura Windfall

So, where do we go from here? The Federal Reserve's own projections seem to acknowledge this difficult future. They've revised their year-end inflation projection higher, to 3%, while lowering the economic growth forecast to just 1.4%. They are signaling choppier waters ahead.

Mask

Yet, they are still signaling two interest rate cuts in 2025. It feels contradictory. They see higher inflation and lower growth, but they're still planning to ease policy. It suggests they believe this inflation spike is either temporary or that the risk of a slowdown is more severe.

Aura Windfall

Fed Chair Jerome Powell’s recent comments were very telling. He said, and I'm quoting, "Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs." He acknowledges the reality that the cost has to be paid, and some of it will fall on the end consumer.

Mask

That's a direct admission. The Fed knows what's coming. The big question is the September meeting. The base case is one 25-basis-point cut. The bull case is multiple cuts this year if the economy really starts to tank. The bear case? No cuts at all as inflation proves sticky.

Aura Windfall

It seems the future path depends entirely on whether the inflation data continues to run hot or if the labor market begins to show serious signs of softening. We’ll be watching every CPI print, every jobs report, and every GDP release with bated breath. The stakes are incredibly high.

Aura Windfall

That's the end of today's discussion. The core truth is that this PPI surge, the largest in three years, suggests tariffs are finally translating into significant cost pressures that will likely reach consumers, complicating the Federal Reserve's path forward.

Mask

It creates a period of deep uncertainty. Thank you for listening to Goose Pod. See you tomorrow.

## Producer Price Index (PPI) Surge Signals Rising Inflation, Complicates Federal Reserve Decisions **News Title:** PPI report shows biggest surge in three years. Here’s what that says about inflation. **Report Provider:** CBS News **Author:** Megan Cerullo **Publication Date:** August 14, 2025 ### Key Findings and Conclusions: A recent report from the Labor Department indicates a significant surge in the Producer Price Index (PPI) for July 2025, rising by **0.9%** from the previous month. This figure **far outpaced economists' forecasts of a 0.2% increase** and represents the largest monthly jump in over three years, since June 2022. Economists interpret this substantial increase in wholesale inflation as a strong indicator that **cost hikes are likely to be passed on to consumers soon**. While consumer prices (measured by the Consumer Price Index - CPI) have been relatively slow to rise in 2025, this PPI data suggests that underlying cost pressures are building. The surge is attributed, in part, to the impact of President Trump's tariffs, which are beginning to significantly drive up the cost of imported goods. Experts suggest that businesses' ability and willingness to absorb these tariff costs may be diminishing, leading to broader price adjustments across the economy as existing inventories are depleted and new pricing strategies are implemented. ### Key Statistics and Metrics: * **July 2025 PPI Increase (Month-over-Month):** **0.9%** * **Economists' Forecast for July 2025 PPI Increase:** **0.2%** * **Last Comparable PPI Surge:** June 2022 (more than three years prior to the report) * **July 2025 CPI Increase (Annual Basis):** **2.7%** (reported two days prior to the PPI report, and was slightly cooler than expected) ### Impact on the Federal Reserve and Monetary Policy: The latest PPI data presents a complex challenge for the Federal Reserve as it prepares for its September 17th meeting. The central bank has maintained its benchmark interest rate steady since December 2024, adopting a "wait and see" approach to the economic impact of the Trump administration's tariffs. * **Previous Outlook:** Following the cooler-than-expected CPI report, there was a greater expectation that the Fed might cut interest rates in September. * **Current Dilemma:** The strong PPI report introduces doubt about a September rate cut. A rate cut would lower borrowing costs for businesses and consumers, potentially exacerbating inflationary pressures. * **Expert Opinions:** * Oxford Economics analysts believe the PPI data highlights the Federal Reserve's dilemma in balancing its dual mandate of low inflation and full employment. They anticipate the Fed will **hold off on rate cuts until December**. * Morgan Stanley's E*TRADE managing director, Chris Larkin, stated that the PPI data "doesn’t slam the door on a September rate cut, but based on the market’s initial reaction, the opening may be a little smaller than it was a couple of days ago." ### Notable Risks and Concerns: * **Tariff-Driven Inflation:** The PPI report strongly suggests that President Trump's tariffs are directly contributing to rising costs within the supply chain. * **Consumer Impact:** Economists warn that consumers are unlikely to remain insulated from these tariff-driven price increases indefinitely, as the current data indicates these costs are beginning to "ripple through the economy." * **Erosion of Business Absorption:** The broad-based nature of the wholesale price increases suggests that businesses are finding it increasingly difficult to absorb tariff costs, leading to a greater likelihood of passing these costs onto consumers. ### Material Financial Data: The core financial data presented is the **0.9% month-over-month increase in the Producer Price Index (PPI)** for July 2025, which signifies a substantial rise in wholesale inflation. This figure is critically important as it serves as a leading indicator for future consumer price changes.

Read original at CBS News →

ByMegan CerulloReporter, MoneyWatchMegan Cerullo is a New York-based reporter for CBS MoneyWatch covering small business, workplace, health care, consumer spending and personal finance topics. She regularly appears on CBS News 24/7 to discuss her reporting.Read Full BioAugust 14, 2025 / 12:59 PM EDT/ CBS NewsWhat the new CPI report means for the economy What the new inflation report means for the economy04:40The producer price index, or PPI, surged last month, far outpacing economists' forecasts and suggesting that President Trump's tariffs are starting to significantly drive up the cost of imported goods.

Wholesale inflation rose 0.9% in July from the prior month, the Labor Department said Thursday, outstripping economists' expectations for a 0.2% increase. The jump marks the largest in more than three years, since June 2022.The PPI, which measures price changes before they reach consumers, suggests cost hikes are on the way for shoppers, economists said.

So far in 2025, consumer prices have been slow to rise despite economists' warnings that Mr. Trump's wide-ranging tariff agenda would hike costs for both U.S. businesses and consumers. That's partly because some importers took steps to offset the impact by preordering inventory and absorbing some tariffs to shield consumers in the short term.

But because those were stop-gap measures, economists have warned consumers are unlikely to be insulated from tariff-driven inflation indefinitely. The latest PPI data underscores that higher prices are rippling through the economy, experts say."Tariff-exposed goods are rising at a rapid clip, indicating that the willingness and ability of businesses to absorb tariff costs may be waning," Oxford Economics analysts said in a research note Thursday, noting that the wholesale price increases were broad-based."

We anticipate broader signs of tariff-driven inflation in the data over time as inventories roll over and firms adjust pricing under margin pressure," they said. The PPI report comes two days after July's Consumer Price Index was slightly cooler than economists had expected, rising 2.7% on an annual basis.

The CPI measures changes in prices for goods and services typically bought by consumers.The PPI report "indicates that the new tariffs are continuing to generate cost pressures in the supply chain, which consumers will shoulder soon," Pantheon Macroeconomics chief U.S. economist Samuel Tombs said in a research note Thursday.

What does the PPI mean for the Fed?The data complicates the decision the Federal Reserve faces at its Sept. 17 meeting about whether to hold or cut its benchmark interest rate, according to economists. The central bank has held the rate steady since December 2024, with Fed Chairman Jerome Powell noting that the economy remains relatively solid and that it wants to take a "wait and see" approach to the impact of the Trump administration's tariffs.

The Fed is tasked with keeping inflation low while also promoting full employment — a two-pronged goal known as its dual mandate.Because the CPI report came in cooler than expected, the Fed had been seen as more likely to cut rates next month. But the latest PPI data may put that in doubt, given a rate cut would make it cheaper for businesses and consumers to borrow, thereby potentially further stoking inflation.

"After a string of data pointing to greater odds of a September rate cut, the large upside surprise in producer prices highlights the dilemma the Federal Reserve faces in judging the risks to its dual mandate," Matthew Martin, of Oxford Economics wrote. The group expects the Fed to hold off on rate cuts until December.

The PPI data "suggests inflation isn't the non-story some people thought it was after Tuesday's CPI print," Chris Larkin, managing director of trading and investing at Morgan Stanley's E*TRADE, said in an email to CBS MoneyWatch.As far as the likelihood of a rate cut goes, the data "doesn't slam the door on a September rate cut, but based on the market's initial reaction, the opening may be a little smaller than it was a couple of days ago," he said.

The Associated Presscontributed to this report.TariffsInflationMegan CerulloMegan Cerullo is a New York-based reporter for CBS MoneyWatch covering small business, workplace, health care, consumer spending and personal finance topics. She regularly appears on CBS News 24/7 to discuss her reporting.

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