US Producer Prices Surge Profits Squeezed

US producer prices surged last month, as a result of Trump's tariffs, which have increased the costs of US inputs to production. Producer prices rose 0.9% on the month, more than 4 times the expected figure of 0.2%. If it continued at that rate, it would mean a rise of more than 11% in the next year. Even compared to the past year, it means that producer prices rose by 3.3% as against a predicted 2.4%. The figures for core PPI were even more stark. They rose by 3.7% year on year.

The cause of this rise in prices is directly, Trump's tariffs, which are a tax on US producers and consumers. As I have set out, recently, in the end, this means, in current conditions a tax on US profits, which, inevitably, will initially be countered by a rise in all US domestic prices, leading to a price-wage spiral. The parallel is striking, as this is the largest increase in prices since the ending of lockdowns in 2022, and the surge in inflation that followed. The effect of the Trump consumption tax is seen in the fact that there was a 38.9% increase in the price of fresh fruit and vegetables. The Trump administration, of course, wants all of those food items to be produced in the US, rather than imported, but, another reason for the rise in costs and prices is that all of the labourers that work on the land to produce those crops are currently being harassed by the goons of Trump's ICE hit squads.

As I pointed out recently, this rise in costs, and consequently of producer prices, inevitably passes through into all US prices. At the moment, because many US companies bought large amounts of imports ahead of the imposition of Trump's tariffs, they are able to avoid passing some of those costs through. The producers are the first to work off that inventory, and to have to begin to raise their prices. So, its hard to know how much the difference between this surge in producer prices, as compared to the rise in retail prices is simply down to wholesale and retail inventories still being depleted or is the result of wholesalers and retailers eating some of the higher costs out of their profits.

Either way, in current conditions of tight labour markets, any rise in prices will result in a price-wage spiral, so that either firms eat some of the higher costs from their profits by not raising their prices, or they raise their prices, facilitated by central bank liquidity, and, then, face higher wage costs, as workers demand higher wages to compensate for the higher prices. The latter is more likely, which also means that one of Trump's election promises of reducing prices will go the same way as his promises about no more foreign military adventures, and his promise to have ended the Ukraine war within 24 hours. The inevitable contradictions are exploding in his face already, and his petty-bourgeois nationalist MAGA base is fragmenting.