By Alicia Wallace, CNN

(CNN) — US wholesale inflation was muted in June, presenting what would seem to be a better-than-expected outcome amid President Donald Trump’s hefty tariffs on global trading partners. However, a steep drop-off in travel and other services camouflaged an increase in the cost of goods.

The Producer Price Index, which measures the average change in prices paid to producers, was unchanged from May, and the annual rate of wholesale-level inflation slowed 2.3%, staying lower in part because of base effects (as the year-ago period experienced higher inflation).

“Tariffs are raising prices of manufactured goods, but wobbly demand kept broader inflation contained in June,” Bill Adams, chief economist for Comerica Bank, wrote in a note on Wednesday.

Economists had expected that prices would rise 0.2% on a monthly basis and 2.5% annually, according to FactSet.

Wednesday’s report from the Bureau of Labor Statistics showed a tamer pricing environment for producers versus that in May, when PPI rose 0.3% and 2.7% annually, rates that were upwardly revised.

Core PPI, which excludes the volatile components of food and energy, also held flat from May while the annual rate slowed to 2.6% from 3.2%.

The report comes on the heels of a more concerning monthly inflation report, the Consumer Price Index, which showed that prices moved higher in June, lifted in part by more expensive goods in tariff-sensitive industries.

All told, it creates a complicated picture of the US economy as Trump’s trade war unfolds, forcing businesses, consumers and the central bank to scramble to manage the impact.

A ‘head fake’ of a report

Joe Brusuelas, chief economist at RSM US, called Wednesday’s report a “classic head fake.”

The overall index was distorted by a 2.7% drop in airline passenger services, a likely consequence of international travelers pulling back on their visits to the United States, Brusuelas said. Travel accommodation services prices (hotels and motels) sank 4.1%.

Although gas prices went up in June, falling services prices — particularly at hotels, airlines and car dealerships — drove the overall index lower. Travel and leisure prices have been lower than they typically are, a potential indication that consumers have reined in some discretionary spending amid a period of high economic uncertainty.

“One should not take solace from the fact that foreign customers are opting not to travel to the United States,” said Brusuelas. “That decline in demand translates into weaker tourism, which spreads out through the retail complex, leisure and hospitality and restaurants.”

The 0.1% drop in wholesale services prices masked gains on the goods side. Finished consumer goods prices, for example, were up 0.4% in June, accelerating from a 0.3% increase in May.

Another area that applied downward pressure on the overall index was the trade services category, where prices were unchanged. Trade services, which can be volatile, measures profit margins for wholesalers and retailers.

Those margins were squeezed in June, an indication that businesses were eating some of the higher costs.

“Rising tariffs are resulting in thinner margins that at some point will necessitate a greater pass-through downstream to customers,” Brusuelas said. “While you’re not seeing that in the airline sector, you are beginning to see it elsewhere.”

But just how much businesses are able to pass along to consumers remains to be seen. Skittish consumer demand may be limiting businesses’ pricing power, Comerica’s Adams noted.

PPI serves as a potential bellwether for price changes consumers may see in the months ahead.

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