August 31, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Notta.

00:00 Tara Bayke: The cost of raw materials, those inputs like aluminum, copper, steel, already rising in costs and then adding tariffs on top of that, that can, of course add to those pricing pressures as well. Good or bad thing, depending on what side you’re on in terms of the production cycle.

00:17 Taylor St. Germain: Hi everyone, This is Taylor St. Germain with ITR Economics. Thanks so much for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I have a familiar face with me again, Tara, back with us on TrendsTalk. And today, Tara and I wanted to unpack inflation. It’s been a little while since we provided an inflation update. I’m going to kick things off here by just sharing with you our two headline inflation forecasts. And then I’m going to kick it over to Tara so she can chat with us about where some of the drivers of inflation are coming from. So with that in mind, two benchmarks that I wanted to share with everyone here. First is the US Consumer price index, and then we’ll talk through the Producer Price index. Folks, I’m not going to spend too much time on the consumer price index, or the CPI, because you can head over to our other podcast, Fed Watch, and listen to Connor as he unpacks the CPI and interest rates, but I wanted to just share a high level note with you. We do expect the CPI to continue to accelerate really into the back, into the fourth quarter of 2026. There’s a lot of inflationary pressure out there on consumers, and it has all of us economists debating whether or not we’re going to get an interest rate hike from the Fed here in the fourth quarter. And more and more analysts and investors and economists around the world are expecting that to happen. So we’ll have to see how the geopolitical events evolve here, the situation in Iran and how the government is going to continue to tackle inflation as we go into the midterm season here. So the CPI is forecasted for ITR again, US Consumer Price index, we are forecasting the CPI to finish up 3.4%, and that is a year-over-year growth rate comparing 2026 to 2025. We’re currently at 3.1% on the year-over-year growth rate, so there’s a bit more acceleration to happen as we move deeper into the year. But again, head over to Fed Watch. Connor does a great job unpacking the CPI. Where Tara and I wanted to focus today is on the producer side, because it really represents the type of cost pressure inflation that businesses are facing. Again, when I refer to the US Producer Price Index, you might hear it in the media as the PPI. Really what it’s measuring is average selling prices of finished goods and services here in the United States. So again, a much better representation of the business environment. And we’re seeing more inflation on the producer side than we are on the consumer side. If you look at the year-over-year growth rate for the producer price index, that’s up 3.6%. And we have that number accelerating to 5% by the end of 2026. So we are seeing more inflation on the producer side of things. We just did a poll last week that came in, and I covered it on our Instagram, and it highlighted that most folks were concerned about rising input costs and pricing. And for good reason, folks, we’re still growing as an economy. GDP is growing. Industrial demand is growing. But with this type of inflation, it’s really challenging folks margins. And Tara and I actually have covered this on a previous TrendsTalk, this idea of profitless prosperity. But my message to you is as we look deeper into 2026, we are expecting this acceleration to just continue in that producer price index. So with that in mind, that background in mind, Tara wanted to turn it over to you, so you can help folks better understand what’s driving this producer price index higher.  

03:50 Tara Bayke: Yeah. So a lot of that is really centered around input costs and how much those have risen over the past couple of years or so. I’ll call out just a few, but this will be no surprise to anyone, particularly on the manufacturing side of things. The cost of raw materials, those inputs like aluminum, copper, steel already rising in costs and then adding tariffs on top of that, that can of course add to those pricing pressures as well. Good or bad thing, depending on what side you’re on in terms of the production cycle. In some cases that’s a good thing. On the other side, that’s more of a pressure rather than being a plus there. But also looking at the cost of diesel in terms of transportation. And then also adding in, and these are two areas where I don’t really see businesses giving as much emphasis as they really should and I think it’s because these kind of snuck up on us, it’s the cost of wages and the fact that that’s been increasing. This is coming from the tight labor market that we’ve been experiencing. And that’s even tighter on the manufacturing, construction, wholesale trade side of the economy. Employers are having to pay more to hold on to their employees, and they’re having to pay more to bring on those new employees. So we’re seeing wages on that end rising as well, cutting into profitability, like you mentioned, we talked about this a little bit with profitless prosperity. And also the cost of electricity is rising. So if you think about all of that additional data center activity and how much energy it takes to run these facilities, the additional construction that’s happening, the pressure that’s putting on the existing utility structure that we have, there’s a lot of grid modernization going on. This is all pushing up costs as well. So we’re seeing that variability across states also. So that’s another area I would say to take a pretty strong look at and just see what is the forecast for your state overall in terms of those pressures, not only for the commodities but also what do wage pressures look like within those states where you operate and also electricity costs? What’s that going to mean over the next few years?  

06:02 Taylor St. Germain: Yeah. And those are three very important ones to call out here. And you know, Derek and I on a previous TrendsTalk, we’re talking all about how great data centers are and how great, you know, electric power transmission, distribution markets are. But to Terry’s point that some of the consequences of these markets is some massive increases in the cost of electricity. You look at a state like Ohio, for example, the cost of electricity on a year-over-year basis is up almost seventeen percent. Yeah. That is a massive input for manufacturers. That’s a big challenge for consumers. So even though we see some of these high growth markets that we’re very excited about, there’s consequences. And again, to Terry’s point as well, you have to get very state specific when you’re looking at where some of these wage pressures are coming from, because even though the national numbers might be somewhere between 3 and 4%, you know, if you’re in New York State or you’re in California, folks are expecting north of 5%, you know, increase year-over-year. And then, you know, the opposite can be true when you look at a state like Wyoming, for example, where that’s lower than the national average at 3%. So, exactly like Tara mentioned, what we’re doing with our clients here at ITR is we’re getting very specific, not just a specific input cost, like Tara mentioned, you know, diesel costs, oil costs, but also looking at the geographical differences, between, between some of these markets. Now, one other thing I wanted to add to this conversation, again Tara’s absolutely right, electricity, labor, input costs, these are the three things us ITR Economists are primarily discussing. And another thing we add into our keynote presentations is the fact that, you know, as we continue to look at fiscal policy, it also tells us there’s future inflation that’s not just coming, but here to stay around. And that’s we look at something like treasury issuances. So we’ll compare Treasury issuances to inflation, and Treasury issuances are about a two year leading indicator to inflation. And as we’re talking here today, they’re rising and rising in a pretty dramatic way. We’re still slightly under the post pandemic treasury issuance peak, but it’s very high number. And that tells us there’s more inflation coming. And folks, this is so important for 2027. We do expect inflation to slow down a bit in ’27, but still to stick around. And ’27 is going to be a lot more challenging demand year than ’26. And that’s the conversation Tara, myself and us economists are having with our clients to say, you know, we really have to lean into solving this profitless prosperity concern and try to drive some of this innovation and productivity to really offset these costs. So there’s more inflation coming. Tara, I’m going to put you on the spot, just because I like to, do you think we get an interest rate hike in the fourth quarter because of all this?

09:01 Tara Bayke: Oh, um, you know, I, I wish I had the crystal ball to tell you exactly. I will say at the very least, rates will hold. There’s definitely no rate cuts coming. I’m fairly confident saying that. So let’s say 99% confident saying that. I think if they do hold rates at most we would get one more quarter, possibly. But I, I think I think they’re heavily weighing the option of interest rate hikes. That’s what I think. But if they do, I think it will probably fall in line with what they’ve done in the past, they’ll keep it fairly you know, conservative just a .25 basis point hike if that, which won’t make much of a difference overall in terms of that downstream effect of those of that rate hike. But I think at most they could get away with one more quarter of holding. If they were going to hold them at all. But those hikes are coming.

10:00 Taylor St. Germain: Such an economist answer. Notice how she said 99% confident, not 100% confident. We have the best profession, everyone. We get paid to be wrong, so it’s great. But the, you know, I would agree, you know, I think, would I be surprised if there’s a rate hike in the fourth quarter? I wouldn’t be surprised. I would agree with you that I think there’s very little chance that we see rates come lower at all. It’s going to be interesting, and I think, for the listeners, why you see me waver a little bit is because we do have this new Fed chair. And I know the Fed chair does not determine rates. He’s only one vote. But especially as the midterms, there’s going to be a lot of political pressure on the Fed I think to hold rates, especially from the current administration. So it’s going to be really interesting to see how this relationship between politics and the Fed plays out, especially with this new Fed chair who’s really moving into his first election cycle since becoming a new Fed chair. So again, I think we’re all in agreement, very low likelihood rates come down. The risk is to the upside for interest rates. I think best case scenario, like Tara said, is we’ll get the Fed to hold for another quarter. But again, head over, listen to what Connor has to say on Fed Watch. He’s got opinions on interest rates, and that’s what makes our job as economists fun. We all, we all can debate one way or another. So please head over there and, and folks, please subscribe and, like TrendsTalk wherever you listen to your podcast. We really appreciate all the support. But for now, Tara, thanks for being here. We’ll look forward to having you back again. We’ll see how we do with the rates in the fourth quarter and everyone else. Thanks for joining. I hope you found this information helpful and we’ll talk to you soon.