US Core Wholesale Inflation Hits Three-Year High in July

In July 2025, US wholesale inflation soared, with the Producer Price Index (PPI) rising 0.9% month-on-month, well above the forecasted 0.2%, per the Bureau of Labor Statistics. Annually, PPI hit 3.3%, the highest since February 2025, while core PPI, excluding food, energy, and trade services, climbed 0.6%, the largest monthly increase since March 2022. “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,” said Matthew Martin, senior economist at Oxford Economics. This suggests firms may pass costs to consumers, potentially raising retail prices in import-reliant markets like Singapore, impacting the SGD and consumer spending.

The PPI data triggered a market pullback, with the S&P 500 ETF (SPY) falling 0.44% on 15 August 2025, per real-time data, after a record close on 13 August. Despite the inflation spike, the Fed’s preferred gauge, core PCE, may only rise 0.26% in July, tempered by stable healthcare and airline prices, per Samuel Tombs of Pantheon Macroeconomics. “Despite a 0.9% rise in core producer prices, the Fed's primary inflation rate, the core PCE price index, may only rise 0.26% in July,” Tombs noted. Initial jobless claims dropped to 224,000, and continuing claims eased from a four-year high, signaling a stable but softening labor market that supports rate cut expectations. Markets now price a 91% chance of a 0.25% rate cut in September, down from 100% pre-PPI, with a >9% chance of no cut, per CME FedWatch. “This emboldens those who are less dovish on the Fed that a September cut is not a done deal,” said Jennifer Lee of BMO.

The PPI surge, driven by tariffs, raises concerns about consumer price increases, particularly in trade-sensitive economies like Singapore. “While businesses have assumed the majority of tariff cost increases so far, margins are being increasingly squeezed by higher costs for imported goods,” said Ben Ayers of Nationwide. A modest core PCE rise and stable labor market data suggest the Fed may tolerate the PPI spike, focusing on labor market signals. Investors may turn to safe-haven assets like gold or adjust USD/SGD positions as tariff impacts unfold. The upcoming PCE data on 29 August 2025 will further guide market strategies.