Wholesale Price Surge Sparks Worry Over Tariff Passthrough

For the week ending 15 August 2025

As of midday Friday, global equities rallied as US extended its tariff pause with China. The yield on the US 10-year Treasury note remained flat at 4.29%. The price of a barrel of West Texas Intermediate crude oil fell to $63.27 per barrel from $64.13 last Friday. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), decreased to 14.81 from 16.08 last Friday.

MACRO NEWS

US headline inflation remained steady, wholesale prices jump to recent high

US consumer prices remained steady in July, rising 2.7% year over year. Meanwhile, core inflation, which excludes food and energy, rose 3.1% over the past year — the fastest pace since February — driven predominantly by the services sector. Core goods prices have also continued to tick up after having been deflationary since early 2024, rising 1.2% year over year. On the other hand, wholesale prices, the cost of goods and services purchased directly from producers, rose 0.9% from the prior month, the sharpest monthly rate in three years. The increase was primarily driven by trade services, which measures the margin between wholesalers and retailers, which increased by 2% month over month. This raises concern over the potential risk of tariff passthrough in the coming months.

US and China extend tariff pause for another 90 days

President Donald Trump announced Monday that he had signed an executive order extending the tariff truce with China for an additional 90 days, moving the deadline to November 10. Under the extension, US tariffs on Chinese goods will remain at 30% and China will maintain its 10% duties on US goods, with all other terms unchanged. The move sidesteps a sharp escalation in trade tensions and gives both sides more time to advance negotiations. Asian markets rallied as near-term trade risks appear to have eased, with Japan’s Nikkei 225 index rising 2.6%, hitting a record high. Meanwhile, the US budget deficit increased by $47 million, or 19%, from a year ago to $291 billion in July, with the surge in spending on Social Security, debt servicing and other programs, outweighing the $21 million in custom duty collections from tariffs.

UK and eurozone see weakness in jobs and production, yet GDP holds up

In the UK, the unemployment rate held at 4.7% in the second quarter — the highest in four years — highlighting ongoing labor market weakness. Despite the soft jobs data, GDP grew by 0.3% over the quarter, slowing from 0.7% in Q1 but still beating expectations. On an annualized basis, the economy surged 1.4%. Growth was supported by steady gains in the services sector, a modest rebound in construction and stockpiling ahead of tariff deadlines. In the eurozone, industrial production fell 1.3% in June, driven by a sharp drop in German manufacturing and weaker consumer goods demand across the bloc. Nevertheless, Q2 GDP rose 0.1% quarter on quarter and 1.4% year over year, buoyed by a surge in demand prior to the implementation of US tariffs.

QUICK HITS

The National Federation of Independent Business noted that its small business optimism index rose to 100.3 in July, up from 98.6 the prior month. This measure remains above the index’s long-term average and was driven by improved business conditions and the willingness of small firms to invest in expansions.

The average 30-year US mortgage rate dropped to 6.58%, the lowest since October 2024, while housing inventory started to pick up.

US retail sales increased 0.5% month over month in July, slightly better than expectations.

China imposed a 76% tariff on Canadian canola imports as they believe a surge in canola shipments has harmed China’s domestic business. Canola represents the biggest cash crop for farmers and the levy will likely be a drag on Canada’s agricultural sector.

Retail sales in China increased 3.7% in July, the slowest pace since the start of the year. China’s industrial output grew 5.7% from prior year in July, hitting the lowest reading since November 2024.

New loans unexpectedly shrank by 50 billion yuan in July, the first decline in 20 years, as borrowers rushed to repay funds. This is a further indication of a weakening economy despite the government’s attempts to bolster domestic demand.

China is considering a plan to leverage central government-owned firms to purchase unsold homes from struggling property developers, according to Bloomberg News. The effort could help speed up clearance of China’s excess inventory.

Japan’s economy grew 0.3% from June and expanded 1.0% on an annualized basis. Recession fears have eased and the Bank of Japan is expected to resume its monetary tightening by the end of the year.

Japan’s Producer Price Index, which measures wholesale prices, rose 2.6% year over year in July, marking the lowest increase since August 2024.

Japan’s industrial production rose 2.1% in June, reversing a 0.1% decline in May.

Unemployment rate in Australia decreased to 4.2% in July from 4.3% in June. The participation rate remained at 67.0%, just below the market expectation of 67.1%.

Australia’s business confidence index climbed to 7.4 in July, the highest reading since August 2022.

Brazil’s headline inflation dropped to 5.2% year over year in July amid high interest rates, undershooting all market expectations.

India’s merchandise trade deficit increased to over $27 billion in July — an eight-month high — as imports rose faster than exports.

EARNINGS NEWS

With about 92% of the constituents of the S&P 500 Index having reported for Q2 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 11.7% compared with the same quarter last year, according to data from FactSet. Blended sales rose 6.3% year over year.

THE WEEK AHEAD

Monday: Canada housing starts

Tuesday: Canada CPI, US housing starts

Wednesday: UK CPI, eurozone CPI

Thursday: PMIs for several regions, Japan CPI

Friday: Germany GDP

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.