People in the United States were drowning in $18.3 trillion of household debt in the second quarter of the year, a new report from the Federal Reserve Bank of New York shows, just as producer prices edged higher last month, which could mean that businesses will soon start raising consumer prices, warn experts.

The findings in the latest quarterly report by the Federal Reserve Bank of New York's Center for Microeconomic Data, released in August, come amid multiple warnings that families will likely face extra costs due to the US administration's tariffs on imports.

Arnold P., 55, an economist and financial adviser from Brooklyn, New York, withheld his surname to protect the anonymity of his clients. He revealed that many people he sees are desperate to find ways to lower their outgoings in preparation for higher costs, but are finding it difficult due to debt.

"I see a lot of people whose finances are barely above water, mostly due to debt," he told China Daily. "(They have) college loans, a mortgage, some have six-figure credit card debt.

"I warn them that when your debt service is 40 percent or more and you have inflation, your necessities are costing you much more and if you have very little savings, then this is a recipe for disaster. I believe this is the case for many working families and individuals who are already complaining about the cost of living."

Household debt increased by $185 billion (1 percent) in Q2 2025, to $18.39 trillion, the New York Fed found.

"This quarter's flow of household debt into serious delinquency was mixed across debt types, with credit card and auto loans holding steady, student loans continuing to rise, and mortgages edging up slightly," Joelle Scally, an economic policy adviser at the New York Fed, said in a statement.

The rise in personal debt comes alongside the release of a separate report on Thursday by the Labor Department, which showed that US wholesale inflation surged unexpectedly last month, in a sign that Trump's tariffs were not only pushing up costs for businesses, but higher prices could soon be a reality for consumers.

Christopher Rupkey, chief economist at fwdbonds, a financial markets research firm, wrote in a note that "it will only be a matter of time before producers pass their higher tariff-related costs onto the backs of inflation-weary consumers".

The producer price index measures inflation before it hits consumers, or the final demand goods and services prices. It rose 0.9 percent last month from June, compared with the Dow Jones estimate of a 0.2 percent gain. It was its biggest jump in three years. And compared with 2024, wholesale prices rose 3.3 percent.

Carl Weinberg, chief economist at High Frequency Economics, told Reuters: "This is a kick in the teeth for anyone who thought that tariffs would not impact domestic prices in the United States economy. This report is a strong validation of the Fed's wait-and-see stance on policy changes."

Financial markets anticipate that the Fed may cut rates in September.

Joao F. Gomes, the Howard Butcher III professor of finance and senior vice-dean of research, centers, and academic initiatives at the Wharton School of the University of Pennsylvania, is an expert on the role of financial markets in the macroeconomy.

He told China Daily that the US economy is slowing down, "and this might be driven by some nervousness about hiring and investing by businesses in response to the new administration's changing policies".

Overall, the impact of tariffs may mean an average family could pay $2,400 a year, according to the Yale Budget Lab.

Yet 59 percent of US citizens don't have enough savings to cover an unexpected $1,000 emergency expense, a Bankrate emergency savings report conducted with SSRS and YouGov in January found.

About 46 percent of adults surveyed by Bankrate, a consumer financial services firm based in New York, had enough emergency savings to cover three months of expenses. But 24 percent had no emergency savings at all.

Data from the New York Fed showed that credit card balances rose by $27 billion from the previous quarter to $1.21 trillion. Meanwhile, auto loan balances also increased by $13 billion to $1.66 trillion. Student loan balances went up $7 billion to $1.64 trillion.

In total, non-housing balances rose by $45 billion, a 0.9 percent increase from Q1 2025. Lastly, mortgage balances rose by $131 billion in the second quarter and were $12.9 trillion by June 2025, the Fed said.

Arnold, the financial adviser, says that households will undoubtedly be affected by higher prices on goods as the US relies on imports "of products from Canada, Mexico and China".

He suggests that any household that is battling debt should focus on ensuring the basics are covered.

"I mean, obviously, rent is high," he added. "It absolutely constricts the budget. … That's always your first priority, paying the rent, paying the mortgage, and then everything else, including food, is secondary."

belindarobinson@chinadailyusa.com