The focus of the markets this week was on inflation.
On Tuesday we received the inflation report for July and it showed the Consumer Price Index (CPI) rose a modest 0.2%, firmly in line with expectations and down from previous monthly readings. The inflation rate remained at 2.7%, better than the Dow Jones estimates that predicted the inflation rate would tick higher to 2.8%.
So, with a weakening job market and tame inflation, the Fed may have little choice but to cut interest rates in September.
But wait, there’s more! We received more inflation data this week – the July Producers Price Index (PPI) was released on Thursday. Where the CPI reflects changes in prices paid by consumers, the PPI reflects changes in the prices paid by companies. It is often referred to as “wholesale inflation,” and it rose much higher than expected in July. Wholesale prices jumped 0.9%, compared with the Dow Jones estimate for a 0.2% gain. It was the biggest monthly increase since June 2022.
PPI is interesting because it can often show inflation in the pipeline that could be felt by consumers in the near future.
“The fact that PPI was stronger-than-expected and CPI has been relatively soft suggests that businesses are eating much of the tariff costs instead of passing them onto the consumer,” said Clark Geranen, chief market strategist at CalBay Investments. “Businesses may soon start to reverse course and start passing these costs to consumers.”
https://www.cnbc.com/2025/08/14/ppi-inflation-report-july-2025-.html
This is exactly what Goldman Sachs reported on Monday, before either of these inflation reports were released. Through June, they found that US businesses absorbed 64% of the tariff costs. Consumers took on 22% of the tariffs, while foreign exporters, by lowering their export prices, absorbed 14%.
In light of all this news, the S&P 500 reached a new all-time high this week. Markets are trusting US corporations can find ways to maintain their profit margins while absorbing these higher costs.
If absorbing these higher costs causes profits to stumble, stock prices will likely be due for a correction this fall.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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