Two inflation reports are out this week that might give a bit of whiplash. Tuesday we learned consumer prices are relatively stable across many goods and services — despite higher tariffs. But then Thursday, we learned producer prices are spiking. 

The producer price index measures what wholesalers charge before consumers get the bill. It rose 0.9% between June and July. That’s the biggest month-over-month gain in three years. What’s with the disconnect? 

The consumer price index measures what we pay. The producer price index measures what the people who sell us stuff pay. And in certain PPI categories, those people are paying a lot more. 

“We're seeing pockets of price pressures,” said Ben Ayers, a senior economist at Nationwide. “What really jumped out to me was, you know, food costs jumped and metal costs jumped.”

Prices for services rose too, by more than 1%. Some of this is cyclical — gains in financial services mirroring gains in the stock market.

But there were also spikes in hotel accommodations and freight transportation.

“We are seeing businesses being creative about how to make up for some of the costs from tariffs,” Ayers said.

In certain tariff-sensitive categories, prices in the PPI have been rising for months. But big increases haven’t shown up yet in the CPI, which ticked up only 0.2% in July.

One reason is that many businesses are reluctant to pass on higher import taxes to consumers.  

“That tells me that a lot of these markets are more competitive than I thought,” said Laura Veldkamp, a professor of economics and finance at Columbia University’s business school. 

“If you raise your prices, you've got a competitor next door selling something similar, and people won't buy your more expensive good. They'll buy the less expensive one,” she said.

So for many businesses, the thinking has been, why raise prices now if you can wait it out in case the tariffs are negotiated away.

Meanwhile, retailers have been burning through built-up inventory and that’s created a lot of uncertainty, said Matthew Martin, a senior U.S. economist at Oxford Economics. 

“When is the cost increases really going to start, and what is going to be the magnitude?” he said.

So this PPI report may be an inflection point — it shows that cost pressures on importers are going up. Plus, we now know that tariffs are here to stay, not just a negotiating tool. 

“As we enter fall, we are going to see higher prices for consumers, maybe not as large of a rise as we had initially expected, but we think the duration of the increase is going to be longer,” Martin said.

How long? Martin expects consumer prices to rise faster through the fall and into the beginning of next year.