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‘Imminent, Serious’ Inflation on the Horizon

Inflation is becoming increasingly problematic for U.S. producers. Unanticipated gains in June's Producer Price Index (PPI), released July 11, have economists predicting rising costs for manufacturing and construction material in connection to the U.S. administration's tariffs on various imports.

According to Reuters, the PPI reached an annual increase of 3.4% in June after last month's 0.3% gain, becoming the most substantial annual increase since the 3.1% seen in November 2011. Economists predicted the PPI would increase 0.2%. As previously reported by news outlets, the Federal Reserve is still expected to increase interests rates twice before the end of 2018.

U.S. tariffs have caught the attention of China, the European Union, Canada and Mexico, all of which have retaliated with their own tariffs in recent months. President Donald Trump's 25% tariffs on $34 billion of Chinese imports, and threats of more, is creating tight times for U.S. manufacturing and construction due to significant price increases in steel, aluminum and softwood lumber as well as iron and steel mill products.

"Since the PPI covers the price of domestically produced goods, these gains represent U.S. producers raising prices behind the tariff wall or the impact of higher input costs," Chief Economist John Ryding, of New York-based RDQ Economics, said in the Reuters article. "We expect these price pressures will flow through into higher core inflation at the consumer level as the year unfolds."

NACM Economist Chris Kuehl, Ph.D., suggested the low inflation seen in the past decade might soon come to an end due in part to the rising prices of commodities and key services. The U.S. government's tariffs are making this threat "more imminent and serious," he noted.

"The tariffs on steel and aluminum triggered the metal producers to boost prices by around 40%," Kuehl said. "The threats of a trade war have further added to the problem as this will make imports costlier. The full impact of this move has not yet been felt, but those days are coming and soon."

-Andrew Michaels, editorial associate 

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Saturday, 23 March 2019