Hidden Inflation within the Intermediate Transportation Phase

In recent times, the economic landscape has been undergoing some significant changes, with higher food prices being a notable factor contributing to the increase on the goods side. Raw agricultural products have seen a 12.8% jump from June, while fresh and dry vegetables have experienced a substantial price surge.

The impact of tariffs on international trade is also causing ripples in the economy. Some U.S. importers have pulled forward their freight to mitigate tariffs, resulting in increased inventory in the middle mile (the distance between warehouses and distribution centers). This move has caused a shift in the timing of peak season items, which are now expected to reach retailers' distribution centers in September and October, two to three months earlier than usual.

Certain industries, particularly the automotive industry, mechanical engineering, chemical, and pharmaceutical sectors, are being hit hard by these changes. German companies, in particular, are facing significant challenges due to new US tariffs of up to 15% on EU imports starting in August 2025. Economists have long warned that these tariffs will eventually be passed on to consumers in the form of higher prices, and prices for goods in these sectors are expected to rise notably in the coming months due to increased costs and trade uncertainties.

The burden of these tariffs is not evenly distributed. U.S. importers are currently paying 64% of the tariff burden, while foreign exporters pay 14% and U.S. consumers shoulder 22%. By October, it is estimated that consumers will pay approximately 67% of the additional tariff burden, according to Goldman Sachs.

The potential for inflation is a growing concern. The recent Producer Price Index (PPI) figures suggest that inflation is on the horizon, with the PPI rising 0.9% in July, higher than economists' expectations of a 0.2% increase. Excluding food and energy, core PPI reached the highest level since March, indicating a broader-based inflationary pressure.

These developments have led the Federal Reserve to consider a pause in interest rates due to the possibility of "hidden inflation." As the economic landscape continues to evolve, it is crucial to monitor these trends and their potential impact on consumers and businesses alike.