A flurry of economic data and announcements Thursday pointed to a U.S. economy in a state of flux where interest rates will remain elevated and consumers will face higher prices due to tariffs.
The day began with the news that the producer price index (PPI) surprised Wall Street by falling 0.5% in April. The index, which tracks prices paid by manufacturers, wholesalers and retailers, has been trending downward for the past three months. But April saw a 0.7% decrease in wholesale service costs, the largest pullback since 2009, when the index began tracking service costs.
Despite the falling prices at the wholesale level, Federal Reserve Chair Jerome Powell did not sound interested in lowering interest rates. During a speech at a conference in Washington, D.C., on Thursday, Powell said that the U.S. may be entering a period of supply shocks, volatile inflation and higher interest rates.
“We may be entering a period of more frequent, and potentially more persistent, supply shocks — a difficult challenge for the economy and for central banks,” Powell said.
Some observers seemed to suggest that the benign PPI reading could be the calm before the storm. Food prices decreased 1% and energy dropped 0.4%. But core wholesale goods prices, which exclude food and energy, rose 0.4%. According to USA Today, JPMorgan Chase wrote to investors that the data “suggested that some firms are passing on tariff increases into goods prices, while other are reducing their margins, at least in the near term.”
The largest U.S. retailers were blunt in their assessment of the situation, saying that they will have to raise prices. Walmart CEO Doug McMillon said in a statement released Thursday, alongside the retailer’s quarterly earnings report, that the company is doing its best to keep prices as low as possible, “but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all of the pressure given the reality of narrow retail margins.”
Major companies such as Mattel, Conagra Brands and Best Buy have already said they may raise prices because of tariffs. In late April, the White House criticized Amazon.com when news outlets reported that the online retailer had plans to display the cost of tariffs next to individual products. Amazon later denied the reports.
Amazon CEO Andy Jassy explained during the company’s earnings call on May 2 that the company and its many third-party sellers have been able to put off raising prices because they intentionally bought extra inventory in anticipation of a change in policy. The move has helped keep prices low for now. But once that extra inventory is gone, it is expected that prices will rise.
