Up and down the supply chain

Daily update

While official US July producer price inflation numbers were higher than expected, the signs of the progression of trade taxes were as expected. Supply chains have become longer and more complex—trade taxes progress down supply chains over months, not days. Rising producer prices without rising consumer prices does not automatically mean profits are being squeezed—it means goods in stores represent pre-tariff production, but goods at factory gates are increasingly using tariffed inputs.
The US July official retail sales number is nominal (so, any tax increases reaching the consumer level will push up the number). July official import prices signal whether US importers are able to offset trade taxes with exporters’ price discounts. For that to be true, import prices need to be falling; they need to be falling more than trend; and they need to be falling more in the US than elsewhere in the world.
China’s official July industrial production data was pushed weaker by bad weather and trade issues. Perhaps of more concern is the fact that official July retail sales figures were disappointing. The domestic consumer is not providing a strong alternative to export demand.
Japanese second-quarter GDP data was stronger than expected, boosted by investment spending. Inflation measures moderated more than had been anticipated.