Producer prices rise

July’s U.S. costs to produce goods and services rose by a higher-than-expected 0.9% from the prior month, the Labor Department reported Thursday. The increase from July 2024, at 3.3%, marked the highest annual rise since February’s 3.4%, potentially signaling lingering inflation challenges for the economy, according to some analysts.

“Tariff-exposed goods are rising at a rapid clip, indicating that the willingness and ability of businesses to absorb tariff costs may be beginning to wane,” Oxford Economics Senior Economist Matthew Martin said in a statement. He noted the headline increase in producer prices was concentrated in volatile categories such as trade services.

The Associated General Contractors of America trade group noted July’s prices for nonresidential construction materials and services increased 0.5% from the previous month and rose 2.6% from a year earlier, the largest annual increase since February 2023. “Steep tariff increases earlier this year on aluminum and steel, along with a more recent tariff on raw copper, drove the producer price index for construction inputs higher for the third straight month,” Ken Simonson, the contractor group’s chief economist, said in a statement.

Also known as wholesale prices, producer prices often affect consumer prices. The government reported earlier that July’s annual consumer inflation was unchanged from the prior month at 2.7%, though core inflation excluding food and energy reached 3.1%.

Martin said producer price increases could weigh against a Federal Reserve interest rate reduction in September, predicted previously by several analysts amid recent slowing of job growth and consumer inflation. He said Oxford Economics is standing by its prediction that the next cut won’t come until December.