Wholesale prices increased in July at the quickest pace since February as economists are keeping a sharp eye on inflation data amid President Trump’s trade war.
The 0.9-percent monthly increase — which blew past economists’ expectations — puts the Federal Reserve in a tough position as the central bank faces pressure on both sides of its mandate to keep prices low and employment as high as possible.
The surprisingly weak July jobs report showed that employment conditions are worsening, but upward-moving prices mean the Fed will have to negotiate stagflationary concerns in the short term.
“After a string of data that pointed to greater odds of a September rate cut, the large upside surprise in the producer price data highlights the dilemma the Federal Reserve faces in judging the risks to its dual mandate,” Matthew Martin, an economist with Oxford Economics, wrote in a commentary.
Cutting interest rates could help support the job market by easing borrowing costs for businesses. But doing so could also add fuel to inflation, which has lingered at an annual rate of 2.7 percent for two months since June, according to the consumer price index (CPI).
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