Wholesale prices slip as companies swallow tariff costs — for now

US wholesale inflation cooled in August, giving the Fed a little breathing room and suggesting President Trump’s steep tariffs haven’t ignited an across-the-board price surge—at least not yet.

The Producer Price Index (PPI) fell 0.1% on the month, surprising forecasters who expected a solid increase. Year over year, wholesale inflation eased to 2.6% from a downwardly revised 3.1% in July. The big swing factor: trade services—a proxy for retailer and wholesaler margins—dropped 1.7%, the largest monthly decline in more than a year. In plain English, middlemen cut margins to avoid jacking up sticker prices.

That’s a short-term relief valve with long-term risks. If companies keep eating higher import costs, they’ll eventually have to recoup them with price hikes, cost cuts, or both—especially if demand doesn’t reaccelerate.

Zooming in, the picture gets more nuanced:

• Core under the hood is sticky: Strip out the jumpy bits—trade services, food, and energy—and PPI rose 0.3% on the month and 2.8% year over year. Pipeline pressures aren’t gone.
• Goods vs. services: Goods prices excluding food and energy climbed 0.3%, while overall services fell 0.2%, thanks to that margin compression. Margins for machinery and vehicle wholesalers tumbled 3.9%.
• Durables up again: Wholesale prices for consumer durable goods rose 0.3% for the third straight month, a likely sign of tariff pass-through in select categories.
• Volatility warning: The trade-services component is notoriously bouncy, and PPI data often get revised next month as more reports roll in.

Markets took the print as one more nudge toward an easier Fed. Stocks were mixed (Dow slightly lower; S&P 500 and Nasdaq up), and Treasury yields slipped, as traders leaned into expectations the Fed cuts rates later this month. The bet is that wholesale disinflation plus a softer jobs backdrop outweighs tariff-driven flare-ups.

Economists see both sides of this coin. On one hand, “the tariff effect is not boosting across-the-board price pressures yet.” On the other, the softer headline may reflect a cooling economy and a margin squeeze that can’t last—setting up future consumer price increases once businesses stop absorbing costs. A few tariff-sensitive lines already show heat (think select goods like tobacco), but broader commodity prices, shipping rates, and the dollar trend suggest core goods inflation could ease after a limited pass-through phase.

Why this matters: PPI is a bellwether. Today’s wholesale deceleration hints at a calmer inflation pipeline, but the “clean” core says underlying pressure hasn’t vanished. If demand stays soft, inflation stays tame and the Fed cuts. If companies regain pricing power or pass through more tariff costs, CPI will feel it.

Next up: Thursday’s CPI. Wall Street expects a 0.3% monthly rise and 2.9% year-over-year—a check on how much of August’s wholesale story reached your wallet.

Bloomberg, CNBC, CNN, and AP contributed to this report.