August was the first month when the wrath of President Donald Trump’s sweeping global reciprocal tariffs was in full effect. It was also a critical spot on the calendar to determine how much the administration’s levies are influencing inflation data. Continuing the trend of previous figures, the numbers were mixed. As a result, we will turn to September to obtain a clearer tarifflation picture.
Tariffs in the Inflation Data
Last week, there was some good news and some bad news.
First, the Bureau of Labor Statistics (BLS) released the August Producer Price Index (PPI), a key metric that measures the prices paid by businesses for goods and services at the wholesale level. Economists have been closely monitoring producer inflation, as it serves as a pipeline indicator of inflation, being located early in the supply chain. What did the latest numbers say?
Surprising market watchers, the PPI fell 0.1% after rising 0.7%, which was revised downward from 0.9%. This came in below the market estimate of 0.3%. Core PPI, which removes the volatile energy and food components, also declined 0.1% after a 0.7% increase in July. This, too, was better than the consensus forecast of 0.3%.
On a 12-month basis, wholesale inflation and core PPI eased to 2.6% and 2.8%, respectively.
Bucking the latest trend, a 0.2% drop in final demand services was the largest driver of the better-than-expected numbers. Goods inflation rose by only 0.1%, primarily driven by soaring prices for tobacco products. A plethora of items saw lower prices last month, including utility for natural gas, chicken eggs, fresh and dry vegetables, and copper base scrap.
Ultimately, this suggests that consumer inflation may not be as severe as many anticipate in the future. On that note, the August Consumer Price Index (CPI) was the piece of bad news – or was it?
The headline annual inflation climbed to 2.9% from 2.7% in July, in line with economists' expectations. The 12-month core inflation rate was flat at 3.1%, matching market forecasts. However, on a month-over-month basis, the CPI and core CPI rose 0.4% and 0.3%, respectively. Food and shelter were the most significant factors contributing to the increase.
As for tariff-sensitive items, the numbers were mixed. Apparel and new vehicles advanced by 0.5% and 0.3%, respectively. Televisions registered the biggest jump, surging 2.5%. Appliances ticked up 0.4%, smartphones dropped by 0.2%, and toys declined by 0.8%. Canned fruits and vegetables jumped by 0.5%.
Import prices will be the next key inflation print related to tariffs, with early estimates indicating a 0.1% increase.
Blame Tariffs for Everything
Can the public blame everything on tariffs? A couple of surveys suggest so.
First, the University of Michigan’s Consumer Sentiment Index plummeted worse-than-expected in September to 55.4 from 58.2. The indexes for consumer expectations and current conditions tumbled to 51.8 and 61.2, respectively. Despite the decline, they are higher than the peak of uncertainty this past spring. Still, American consumers pointed to the president's tariffs for their deteriorating confidence in the wider economy climate. "Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews, little changed from last month," said Joanne Hsu, the director of surveys, in a statement.
Second, a new poll by CardRates.com found that 47% of Americans said the president's levies have caused them to accumulate more credit card debt. The figures were higher for millennials (53%) and Generation Zers (56%). "Younger Americans are currently facing a host of financial challenges, from housing crises and student loans to inflation," CardRates.com analysts wrote in the report. "Adding tariff-driven debt only amplifies their financial woes, while older generations may feel the impact of these effects less, as they may have already reached a higher sense of financial stability and security."
Let’s be honest: US household debt, including credit cards, has been steadily rising for years .The Federal Reserve Bank of New York's Household Debt and Credit Report, released for the second quarter, found a $185 billion increase, bringing the grand total to $18.39 trillion. Credit card debt rose by $27 billion to $1.21 trillion.
Need for Speed at SCOTUS
The Supreme Court announced on September 9 that it will expedite a major case determining whether President Trump's tariffs are lawful. Last month, a federal court ruled against the White House, stating that the president overstepped his authority by invoking the 1977 International Emergency Economic Powers Act.
"The cases will be set for argument in the first week of the November 2025 argument session," Supreme Court documents state.
