The US economy is a puzzle but the pieces aren't fitting together

Challenges remain in the months ahead.

For now, households haven’t seen a dramatic run-up in prices at the store that might force them to cut back.

Consumer prices rose 2.7% in July compared with a year ago, the same pace as in June.

But many forecasters had not expected higher prices to start appearing until later this year, especially after Trump delayed some of his most aggressive tariff plans until this month.

Prices for hard-to-substitute, imported staples, like coffee and bananas, have already jumped.

Forecasters expect price increases to widen in the months ahead, as firms sell down pre-tariff stock and raise prices, now that they have more confidence about what the tariff policies might be.

That’s why there was so much focus on the producer price index, which measures wholesale prices commanded by US producers before they hit consumers, offering a clue to what’s coming.

It accelerated at the fastest pace in more than three years in July.

And worryingly, both consumer and producer inflation show the uptick in prices is not limited to goods, suggesting stagflation might very well be staging a return.