How far is the pig in the python?

Last week’s economic data reinforced concerns that tariffs are contributing to inflationary pressures, though it remains unclear where the greatest pinch will be felt. 

The core Producer Price Index (PPI), a measure of inflation at the producer-level, increased 0.6% month-over-month in July, significantly above the 0.2% expectation. Price increases were notable within both goods and services, with tariff-sensitive items such as electronics, sporting goods and appliances all increasing sharply this month.   

This contrasts with the Consumer Price Index (CPI), which came in line with expectations, rising 0.3% month-over-month and nudging the year-over-year rate to 3.1%, up from 2.9% last month. So far, the impact on consumers, at least within this data, has been noticeable yet modest overall. Though it seems important to highlight that after rebounding from the weakness at the beginning of the year, consumer sentiment indicators have been on the decline again recently as inflation expectations remain elevated.

The tariff impact appears to be more pronounced within business than the end consumer at this stage. The key question now is just how much of this cost burden the producers will absorb, potentially hurting profit margins, or pass on to customers, which could harm consumption. The Fed likely still does not have a clear picture of the ultimate economic impacts, but perhaps it’s beginning to come more into focus. All eyes will be on Jackson Hole, Wyo., this week where the Federal Reserve  will hold its annual central bank retreat, with Chair Powell slated to speak Friday.