The Producer Price Index (PPI) data released today, August 14, 2025, indicates a significant rise of 0.9% in July, surpassing economists’ expectations of a 0.2% increase, with core PPI (excluding volatile food and energy components) climbing 0.6%, the largest monthly gain since March 2022. Despite claims that tariffs are driving inflation, the data suggests otherwise, as businesses have largely absorbed tariff-related costs rather than passing them onto consumers. For instance, while tariffs on goods like steel have led to a 7.1% spike in wholesale steel prices, overall goods prices dropped 0.9% in March, and consumer price increases have remained modest, with CPI rising only 2.7% annually in July, below the projected 2.8%. This muted pass-through aligns with historical patterns, where tariffs imposed in 2018 took months to reflect in consumer prices, if at all. Instead, the PPI surge points to broader cost pressures not directly tied to tariffs, suggesting other economic forces are at play.

Profligate federal spending, on the other hand, has significantly contributed to inflationary pressures by flooding the economy with excess liquidity and stimulating demand beyond productive capacity. Over the past few years, expansive fiscal policies, including large-scale stimulus packages and infrastructure spending, have increased the federal deficit, with projections estimating tariffs alone could raise $1.4 trillion over 2026-35, yet dynamic revenue losses from reduced economic output could offset this by $366 billion. This spending has overheated demand, particularly in sectors like construction and services, where supply constraints are evident. The Institute for Supply Management’s Prices Index, registering at 69.7 in June 2025, reflects persistent price increases in raw materials, driven by demand pressures rather than solely import duties. Such fiscal excess amplifies cost pressures at the producer level, as seen in the PPI’s sharp rise, which serves as a leading indicator of potential consumer price increases.

The Federal Reserve’s reckless money printing, particularly through prolonged quantitative easing and low interest rate policies, has further exacerbated inflation by devaluing the currency and fueling asset price bubbles. The Fed’s balance sheet expansion has injected trillions into the economy, with the money supply (M2) growing significantly since 2020, creating a persistent inflationary backdrop. This liquidity surge has driven up input costs, as evidenced by the PPI’s sensitivity to raw material prices, such as the 7.1% jump in steel mill products. While the Fed has hesitated to cut rates, citing tariff-related uncertainties, the real driver of inflation appears to be the lingering effects of its own monetary policies, which have kept borrowing costs low and encouraged speculative spending. Unlike tariffs, which have shown limited and delayed consumer price impacts, the Fed’s actions have created a broad-based inflationary environment, with core PCE inflation forecasted to hit 3.2% by year-end, far above the Fed’s 2% target.