Veggie-flation strikes, with a warning for grocery prices
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The U.S. economy has a vegetable problem, and it's not just "broccoli refusal" either — wholesale prices for fresh veggies soared by a record amount last month, foreshadowing a possible spike at the grocery store soon.
Why it matters: If the last few years have taught us anything, it's that the "real" statistics on inflation don't matter when consumers see the prices of tangible, everyday goods — food, gasoline, etc. — rising sharply.
- While big-box retailers have pledged to hold the line on groceries in the face of tariff pressure, not everyone can (or will) do that as trade war costs mount.
How it works: The Producer Price Index (PPI) for July rose at the fastest clip in three years, far more than economists expected.
- As opposed to the better known Consumer Price Index (CPI), which measures what we pay at stores to buy completed things, PPI measures the costs of those things as they make their way through the production cycle.
- If CPI measures what you're paying right now, PPI is a strong indication of how those prices may move in future — since a higher cost to make things usually means a higher cost to buy them, too.
Zoom in: A 38.9% increase in prices for fresh and dry vegetables from June to July was the major driver of a higher index for "final demand goods" (things that are done and ready to be sold to a consumer, as opposed to things that go into a later production process).
- That was the biggest month-on-month increase for fresh vegetables since March 2022.
Stunning stat: Per Bureau of Labor Statistics data, it's also the largest monthly increase ever recorded in a summer month (June-August), in figures that go back to 1947.
What they're saying: "Because of the import situation, because we get most of that produce across the border, and they're imports, the tariffs have a lot to do with that," Phil Kafarakis, the president and CEO of IFMA The Food Away From Home Association, tells Axios.
Between the lines: There's no guarantee that one month of rising prices will inevitably pass through. But it's another risk factor that suggests the long-awaited consumer tariff pain could be coming sooner than later.
- "With PPI up much more than CPI in July, tariff costs look to be working their way through the value chain," Comerica Bank chief economist Bill Adams said in a note on the PPI report. "Consumer prices are expected to rise faster through the turn of the year as a result."
What to watch: Kafarakis notes that when the harvest cycle kicks in, there may not be enough farm workers to pick all the domestic produce, on top of the weight of tariffs on imported products.
- "So in another, call it four months, getting into October, the quality and then the capacity of what we're able to bring in is going to be a real, real problem. Prices will soar to keep demand in check," he said.
