Wall Street, Gold wobbled on mixed core CPI & PPI report
·
Overall CPI & PPI data signals 3.5-4.0% core
inflation in 2026 on average from the present 3.0% in 2025; Fed may not cut
more than 50 bps in H2CY25
·
Effective weighted average Trump tariffs may
increase to over 15% in H2CY25 from around 7% in H1 and 2.5% in 2024
·
If Trump really goes on with his present tariff
rates, it would be around 20% from 2026, unless Trump renegotiates it to a lower
·
Fed cut of 50 bps in 2026 is not assured even under
Trump-favoured Fed board & Chair; Fed may have to deal with stagflation
On September 11, 2025, apart from the ongoing Trump
tariff & Fed tantrum, some focus of the market was also on U.S. inflation
data for June. The US CPI measures the average change over time in the prices
paid by urban consumers for a market basket of consumer goods and services,
such as food, transportation, and shelter. Core CPI excludes the volatile food
and energy categories to provide a clearer view of underlying inflation trends.
On September 11, the BLS data (NSA) shows the annual (y/y) US core CPI inflation rose at
3.1% in August against 3.1% sequentially (unchanged), in line with the median market expectations of
3.1% and pre-COVID December’2019 of 2.3%.
The US
core PPI inflation was around 2.9% in August vs 2.7% sequentially and 0.6% in
December’2019 (pre-COVID).
The 3MRA
and 2025 (YTM) core CPI rate is now around 3.0% against 3.4% in 2024 and 2.0%
in 2019 (pre-COVID).
The 2025
(YTM) average core PPI was around 2.4% against 1.9% in 2024 and 1.5% in 2019
(pre-COVID).
On
September 12, the BLS data (SA) also shows the sequential (m/m) US core CPI rose 0.3% in August’25 from 0.3% in
the preceding month, and in line with the market expectations of 0.3%.
Similarly,
the US core PPI also increased by +0.3% in August’25 vs +0.4% in the prior
month.
Overall,
the 2025 average (YTM) sequential core CPI is now around 0.3% against the 0.3%
in 2024 and 0.1% in 2019 (pre-COVID).
Similarly,
the US core PPI average rate for 2025 (YTM) is now around +0.3% against 0.2% in
2024 and 0.1% in 2019 (pre-COVID).
In
August’25, the BLS data shows the US super core CPI inflation (w/o food, fuel/energy, shelter/housing, used cars
& trucks) rose at 2.5% from 2.4% in the prior month, compared to 1.7% in
pre-COVID (Dec’19) times. The US Trimmed Mean CPI (Cleveland Fed) surged 3.3%
in August’25 against pre-COVID levels of 2.3%.
In
August’25, the US CPI jumped by 2.9% against 2.7% in July, in line with market
expectations and 2.3% in December’19 pre-COVID times. The US food inflation surged to 3.2% from 2.9% and
1.8% in December’19 pre-COVID days. Usually, US food CPI is always below the
total CPI, but when it goes higher, then total CPI surges above the 3.5-4.0%
Fed red line.
Overall,
the 3MRA of total CPI was 2.8% in August’25 and the 2025 (YTM) average was 2.6% against 2024 average 3.0% and 2.0% in 2019; officially, the US Congress has given the Fed a
price stability mandate of 2.0% CPI inflation on a sustainable basis, not core
CPI or core PCE, and even total PCE inflation.
The US PPI moderated to 2.6% in August’25 from
3.1% sequentially as importers may have front-loaded imports ahead of August’25
Trump tariff implementations.
The 2025
(YTM) PPI was around 2.9% vs 2.4% in 2024 and 1.5% in 2019 (pre-COVID).
On
September 11, the BLS data (SA) shows the sequential (m/m) US CPI surged to 0.4% in August’25 from 0.2% in
the prior month, above the median market expectations of +0.3% and the sharpest
monthly rise since January’25, adding to cost pressures for households. Shelter
prices climbed 0.4%, while food costs jumped 0.5%. Energy prices jumped 0.7% on
the back of a 1.9% surge in gasoline. Additional upward pressure came from
airline fares, used cars and trucks, apparel, and new vehicles, while declines
were seen in medical care, recreation, and communication.
The 3MRA
and YTM average of sequential total US CPI is now 0.3% and 0.2% and the overall
trend indicates around 3.0% average CPI for 2025.
In
August’25, the US PPI decreased -0.1% against a jump of +0.9% in the prior
month, most probably it’s an adjustment (front loading) factor before Trump’s
higher tariffs set to kick off from August’25.
Overall,
the 3MRA and YTM average of US sequential PPI is now around 0.2% and the
underlying trend indicates a 2.7-3.0% average PPI in 2025.
The US
service inflation was steady at
3.8% in August’25 for the last three months, the highest since February’25,
against 2.8% in December’19 (pre-COVID). But the US rent/shelter inflation
moderated for the 4th consecutive month to 3.6% in August’25 to a
new low since October’21. The US rent inflation is on a downward path since
August’24, when it became almost clear about Trump 2.0 and illegal or even many
legal immigrants started to leave the country, which accelerated after
January-March’25. But now, rent inflation may have bottomed out and may rise in
the coming days as a meaningful part of those illegal/legal immigrants may
again return to the US with proper documentation and to fill up the growing
labor shortage, especially in labor-intensive construction, manufacturing and
agricultural sectors.
Analysis
Core CPI
(excludes food and energy):
·
MoM: +0.3%
(July: +0.3%, Forecast: +0.3%)
·
YoY: +3.1%
(July: +3.1%)
Total CPI:
·
MoM: +0.4%
(July: +0.2%, Forecast: +0.3%)
·
YoY: +2.9%
(July: +2.7%)
Major
Contributors:
·
Shelter: +0.4%
MoM, the largest driver of the CPI increase (backflow of immigrants/higher
demand for renting)
·
Energy: +0.7%
MoM, with gasoline prices up 1.9%
·
Food: +0.5%
MoM, with food at home (+0.6%) and food away from home (+0.3%)
·
Other
Increases: Airline fares, used cars and trucks, apparel, and new vehicles
·
Decreases:
Medical care, recreation, and communication services
The CPI data for August 2025 reflects a slight
acceleration in headline inflation, with the YoY rate climbing to 2.9% from
2.7% in July, marking the highest annual increase since January 2025. The 0.4%
MoM rise exceeded consensus forecasts of 0.3%, driven primarily by shelter
costs, which remain a persistent inflationary factor due to housing market
dynamics. Energy prices, particularly gasoline, also contributed significantly,
reflecting global oil price fluctuations. Core CPI, a key gauge of underlying
inflation, remained steady at 3.1% YoY, suggesting that inflationary pressures
in non-volatile sectors are not abating as quickly as hoped. This stickiness in
Core CPI, coupled with rising goods inflation (e.g., apparel and vehicles), points
to ongoing tariff-related cost pressures filtering through to consumers.
Producer
Price Index (PPI) and Core PPI
Headline
PPI:
·
MoM: -0.1%
(July: +0.7%, Forecast: +0.3%)
·
YoY: +2.6%
(July: +3.3%)
Core PPI
(excludes food and energy):
·
MoM: -0.1%
(July: +0.3%, Forecast: +0.3%)
·
YoY: Not
explicitly reported, but Core PPI excluding trade services rose 0.3% MoM and
2.8% YoY
Major
Contributors:
·
Services: -0.2%
MoM, indicating deflation in the services sector.
·
Goods: +0.1%
MoM, with modest increases despite tariff impacts.
The PPI data for August 2025 was apparently soft,
with a 0.1% MoM decline in both headline and Core PPI, defying expectations of
a 0.3% increase. This marks the third instance of deflationary readings in the
PPI this year, suggesting easing cost pressures at the wholesale level. The
services sector, which constitutes roughly 80% of US GDP, saw a 0.2% decline, a
positive signal for the Federal Reserve, which closely monitors services
inflation. However, the Core PPI excluding trade services rose by 0.3% MoM,
indicating mixed signals within wholesale pricing. The YoY PPI slowed to 2.6%
from 3.3% in July, reflecting a broader disinflationary trend at the producer
level, potentially due to reduced inventory pressures and firms absorbing some
tariff costs.
Overall, the latest trend of US core CPI and PPI
indicates a visible impact of higher effective tariffs of ~10.5% vs earlier
3.5% on US goods. The August 2025 US inflation data, as reported by the Bureau
of Labor Statistics (BLS), presents a mixed picture of inflationary pressures.
The Consumer Price Index (CPI) rose by 0.4% month-over-month (MoM) and 2.9%
year-over-year (YoY), slightly above expectations, driven primarily by shelter
and energy costs, while core CPI, excluding volatile food and energy prices,
increased by 0.3% MoM and 3.1% YoY, indicating persistent underlying inflation.
Conversely, the Producer Price Index (PPI) unexpectedly declined by 0.1% MoM, while
core PPI was steady at 0.3% food & energy related distortion/front loading
ahead of August’25 Trump tariff implementations at a weighted average rate of
20.5% against 10.5% during April-July’25 and 3.5% before Trump 2.0 (2024).
Overall
Trend/Outlook
CPI Trend:
Inflation is ticking higher, with headline CPI
approaching 3.0% YoY and Core CPI holding steady at 3.1%, substantially above
the Federal Reserve’s 2% target. Shelter and energy costs remain key drivers,
exacerbated by tariff and immigration-related price pressures (Trump policy
uncertainties). Overall, the underlying
trend indicates a 3.0% average core CPI for 2025.
PPI Trend: Unexpected deflation in headline and Core PPI
suggests easing pipeline pressures, though certain sectors (e.g., goods
excluding trade services) show resilience. The contrast between CPI and PPI
trends highlights a divergence between consumer and producer price dynamics. Overall, the underlying trend indicates a 2.7%-3.0%
average core PPI in 2025.
Overall,
even if we assume a 0.2/0.3% sequential core CPI rate for the next few months
on average, the 12-month (y/y) core CPI rate would be around 3.5% on average. The sequential core CPI rate may be around 0.3% in
H2CY25 as the US core inflation may have bottomed out in H1CY26, and the effect
of Trump tariffs would be visible in the coming months. Frontloaded US imported
goods may have been replenished by September-December ’25 (depending on Chinese
tariffs/pause). The US core CPI inflation may scale around 3.5% by December’25.
Tariffs implemented under the Trump administration
are contributing to higher consumer prices, though the pass-through effect
remains moderate as firms deplete inventories and absorb some costs. Goods
inflation is accelerating (e.g., apparel, vehicles), while services inflation
shows signs of softening, particularly in PPI data.
At the current
& projected R/R of 0.2-0.3% aerage sequential rate, the average core CPI for
2026 may be around 3.5%-4.0% from 3.0% in 2025.
Tariff
Impact: Economists note that
tariffs implemented under the Trump administration are contributing to higher
consumer prices, though the pass-through effect remains moderate as firms
deplete inventories and absorb some costs.
The US
collected ~$83B of tariffs in 2024 on $4105B goods imports, translating to an
effective weighted average tariff rate of around 2.0-2.5%. Against this, the US collected ~$90B tariffs in
2025 (till August) on $2865 worth of goods imports, translating to an effective
weighted average tariff rate of ~6.6%; i.e., only an additional effect of 4%
with an equal distribution among US importers, global exporters, and also US
consumers. The muted effect of higher import duties on inflation through H1CY25
stems from time lags in price transmission, tariff exemptions, and rollbacks,
declining import volumes, cost absorption by businesses, consumer substitution,
and the structure of inflation metrics.
But the effects of tariffs on corporate and
household balance sheets may be clearly visible from 2026, as by then the
transmissions of comparatively higher tariffs may be visible in the real
economy.
Theoretically, the weighted average Trump tariff
rate should be ~12% during Apri-July’25, but in reality, it was ~7% on average
and against 5% during January-March’25. Thus, the higher effects of Trump
tariffs are now beginning to show in US consumer prices to some extent, even
after supposedly equal distribution of additional tariffs among US importers,
consumers and global exporters.
While tariffs raised costs for specific goods
(e.g., clothing, autos), these effects were diluted in broader CPI data and
likely emerged more prominently after April 2025 as pass-through increased and
exemptions expired. Also, import data is showing front-loading from November’24
to March’25 to beat Trump tariffs ahead of Trump’s April 2 Liberation Day
reciprocal tariffs announcement. Now, both Wall Street and Main Street and
Global Street are bound to be affected to some extent, as all these
stakeholders may have to bear some portion of additional Trump tariffs.
Overall,
the effect of Trump tariffs on the US inflation data is muted so far:
·
Front-loading of
imports in Q4CY24 and Q1/Q2CY25 in
anticipation of higher Trump tariffs from April and August’25
·
Lack of adequate
pricing power by US importers/producers
·
Likely discount
by exporters to some extent to retain market share
·
Fed is assuming
15.5% weighted average Trump tariffs as a base case for the longer run, which
may be equally borne by US importers, consumers, and also exporters at around
1/3rd each.
·
There would also
be factors of cross-currency devaluation, like lower CNY against USD to some
extent, adjusting higher import and lower export prices on both sides.
·
Under this base
case, Trump’s tariff may boost core CPI inflation to around 3.5-4.0% in 2026 as a one-time effect (transitory)
·
US import
inflation was lower in the last year; the US import price index was 141.5 in
May’24 against 141.30 in June’25; i.e. 0.14% decrease in 13 months, and almost
zero imported inflation and resulted into similar inflation for US goods; US
imports almost 50% of its merchandise goods requirement and out of that 15%
imported from China directly and another 35-50% indirectly through so-called
Chinese proxies (transshipments) through Mexico, Canada, EU and Vietnam mainly,
resulting in cheaper US imported goods and goldilocks nature of the US economy.
Also, imported energy (oil) disinflation
is helping headline US import inflation in a muted shape.
Conclusions
In 2024 and H1CY25, overall muted inflationary
trend and stable employment were providing the Federal Reserve (Fed) with room
to maintain current interest rates as it assesses the economic impact of
Trump’s uncertain policies on trade, tariffs, techs, immigration, deportations,
deregulation, tax cuts and other potential fiscal issues including the planned
hand out of $1000 each to a new baby. However, the narratives of higher tariffs
by the Trump administration have raised concerns about potential future inflationary
pressures in the H2CY25 and 2026 data. Trump is set to impose ~20% weighted
average tariffs from August 2025 vs ~10% in H1CY25. The additional impact may
be bound to be visible in the corporate report card (absorption/eating of
tariffs), not only in the US, but also globally, and the labor market
(employment) is bound to be affected along with headline and core inflation;
i.e., Trump tariff tantrum may cause a synchronized global stagflation in the
coming months.
Considering various narratives, the Trump
administration projected a 10% weighted average effective US tariffs in the
longer run. Looking ahead, Trump may withdraw 20% additional Fentanyl tariffs
on China and 25% on Canada and Mexico from October 2025 or January 2026 for
‘satisfactory compliance’ in preventing the smuggling of the synthetic opioid
into the US. This will help the overall weighted average effective US tariffs
rate closer to ~15% and the net effect after adjusting previous tariffs,
exporters’ profit, and FX factors closer to ~10%.
Trump
has also extended his reciprocal tariffs pause on Chinese goods from August to
Novbember-December’25 to ensure no supply shock for the US economy. Trump may
continue his chaotic tariff policy to get a fair trade deal for the US. If Trump goes on with his higher reciprocal
tariffs @20%, it would cause a supply shock and a higher cost of living for
ordinary Americans, most of whom live on a paycheck-to-paycheck basis.
Further, such tariffs would cause a demand shock in
the future and an all-out recession. This will also cause a loss of Vote Bank
(ordinary Americans) and Note Bank (political funding by corporate America) for
Trump and Republicans. Thus, Trump is bound to blink and may take a less
hawkish tariff position in the coming days, especially on China, Canada,
Mexico, Japan, and the EU, the top five US exporters. The Trump admin may
finalize tariffs by October 2025.
Fed may cut
in September and December 2025, even after considering higher Trump tariffs as
transitory. Although the Fed generally talks about 2.0%
PCE inflation as a price stability target, in reality, it maintains 1.5%
core/total PCE inflation and 2.3% core/total CPI inflation; i.e. around 1.9%
average inflation (PCE+CPI) targets, US Congress has entrusted along with
maximum employment 96.0-95.5% of the labor force; i.e. 4.0-3.5% headline
unemployment rate.
Fed may exit QT for $5T UST; MBS QT will continue;
Fed may replace MBS depletion with UST in the future in a systematic way; this
may help bond prices to go higher and yields lower to pacify Trump & Co.
Fed may also go for rate cuts from September 2025 citing higher tariff-related
inflation in the future as transient and weakening labor market. Lower
inflation is currently a function of the favorable base effect (higher base)
and front-loading of imported goods to avoid higher Trump tariffs. But 15-20%
weighted average Trump tariffs effective from August 2025 may boost US
inflation in H2CY25-2026 to 3.5-4.0%.
The Trump admin also knows this fact and thus is
now pressuring the Fed to go for a crisis-era rate cut of 100-200 bps at a time
or within a short span. By pressuring the Fed, US President Trump is
complicating the Fed’s job more and also hurting the future credibility of the
Fed as an independent institution. This may hurt the USD's credibility as a
global reserve currency in the future, and the US may be losing the advantage
of its greatest weapon, the USD hegemony, which it uses for geopolitical
influence and becoming the number one superpower in the world.
Bottom
line:
Cumulative 50 bps Fed rate cut in H2CY25 is now a
done deal, but another 50 bps cut in 2026 is not a done deal yet, and the Fed
may not cut 100 bps through January’26 (from September 25) as being expected by
the market now. As a base case, the Fed may cut 50 bps in H2CY25 (September and
December) in line with June’25 dot-plots, but another 50 bps rate cut in 2026
may not be certain if US core CPI inflation really surges towards 3.50% average
in 2026 from 3.00% in 2025. Fed may cut only 25 bps or even opt for no cuts in
2026 if US unemployment rate continues to hover around 4.30% or edges down to
4.00% on average in 2026 against 3.50% core CPI inflation. Another option (as best case) is that the Fed
may cut 100 bps in H2CY26 to front load and opt for no rate cuts in 2026, but
it would be most unlikely.
Impact on Market
Wall Street reacted cautiously to the mixed
inflation data and soft jobless claims report. On Thursday, Wall Street Futures
surged on hopes of 100 bps rate cuts in the next four meetings (September ’25-January’26);
Gold zoomed. But on Friday, both Wall Street and Gold stumbled after fine
prints of core CPI and PPI data indicated higher inflation in the coming
months; core CPI may jump towards 3.5% in late 2025 and further in 2026 to even
4.0% levels, which may make the Fed’s rate cuts very difficult even under a Trump-savvy
Fed Chair instead of Powell. Also, elevated inflation expectations (1Y) AT 4.8%
and subdued consumer sentiment dragged Wall Street due to concerns of a looming
stagflation.
Stock futures rose slightly, and Treasury yields
dipped modestly after the PPI release, but the CPI report tempered expectations
for aggressive rate cuts. The US dollar weakened slightly on optimism for US
monetary easing. Rising CPI, driven by necessities like food, shelter, and
energy, continues to squeeze household budgets, particularly as tariff costs
are passed on. Real wage growth remains under pressure, with a CBS News poll
indicating consumer pessimism about price trends. Firms are navigating tariff
pressures by depleting inventories, but this buffer may diminish, potentially
leading to sharper price increases in late 2025 or early 2026.
Wall Street experienced a volatile week, with mixed
performances across the major indices—Dow Jones Industrial Average (DJIA),
Nasdaq 100 (NQ-100), and S&P 500 (SPX-500). Investors focused on economic
data, including labor market reports and inflation figures, as they anticipated
the Federal Reserve's upcoming interest rate decision.
Index Performance:
Wall Street surged for the week on hopes of 100 bps rate cuts through Jan’26
amid signs of softening labor market, and mixed inflation report
·
Dow Jones Industrial Average (DJIA): Gained nearly 1% for the week, marking its first
weekly gain in three weeks. On Thursday, Sep 11, the DJIA climbed 1.4% (617.08
points) to close at 46,108.00, with 25 of its 30 components in positive
territory, but on Friday, Sep 12,
the Dow fell 0.6% (approximately 270 points), retreating from its record highs.
·
Nasdaq 100 (NQ-100): Rose 2.92% for the week, outperforming other
indices, driven by Big Techs. On
Thursday, Sep 12, the Nasdaq Composite gained 0.7% (157.02 points) to close at
22,043.08, marking its fifth consecutive record close. On Friday, Sep 12, the Nasdaq climbed 0.5%, supported by Tesla's
seven-month high.
·
S&P 500 (SPX-500): Gained 1.49% for the week, its best performance
since early August. On Thursday, Sep 12, the S&P 500 gained 0.9% (55.43
points) to close at 6,587.47, with all 11 sectors in the green. On Friday, Sep
12, it fell just below the flat line, despite earlier record highs.
Market Movers
·
Gainers:
UnitedHealth (higher insurance allocations from the Trump admin), Goldman Sachs,
and JPMorgan Chase were among the top performers
·
Sherwin-Williams,
Apple, and Walt Disney were in red
·
Over the week,
ORCL’s surge was driven by its guidance despite Q1CY26 results being in line
with the market expectations, but it showcased explosive cloud growth. Cloud
revenue grew 28% to $7.2B, with Infrastructure-as-a-Service (IaaS) up 55% to
$3.3B.
·
Oracle’s 359%
RPO growth to $455 billion signaled robust demand for its cloud infrastructure,
particularly in AI-related services, boosting investor confidence in tech.
Analysts raised price targets, reinforcing Oracle’s role as an AI frontrunner.
·
On Friday, the
Dow Jones Index dropped 231 points or 0.50 percent. Losses were led by Merck
(-2.75%), Sherwin-Williams (-2.14%), and Honeywell International (-1.79%).
Offsetting the fall, top gainers were Apple (1.82%), Microsoft (1.76%) and
Walmart (0.83%).
· The Nasdaq rose 0.4% Friday, boosted by a 7.4% jump in Tesla and a 1.7% gain in Microsoft after the company avoided a potential EU antitrust fine, lifting the broader tech sector. Tech and consumer discretionary stocks outperformed, while materials and health care lagged.
Weekly
Technical outlook: DJ-30, NQ-100, SPX-500 and Gold
Looking
ahead, whatever may be the narrative, technically Dow Future (CMP: 45900) now has to sustain over 46300-46600*
for a further rally to 47100/47200 in the coming days; otherwise sustaining
below 46200/46100 may fall to 45800/45500-45300/44900 and further to 44200/43900-43400/42400
and 41700/41200-40700/39900 in the coming days.
Similarly,
NQ-100 Future (24100) now has
to sustain over 24200 and further rally to 24300/24450-24700*/25000 in the
coming days; otherwise, sustaining below 24150- 24000/23900-23750/22900, NQ-100
may again fall to 22400/22200-21900/20900-20700/20200 and
19890/18300-17400/16400in the coming days.
Looking
ahead, whatever may be the fundamental narrative, technically SPX-500 (CMP: 6600) now has to sustain over 6700 for a
further rally to 6800/7000-7500/8300 in the coming days; otherwise, sustaining
below 6575/6550-6525/6500, may fall to 6450-6375/6300-6250/6200 and further
fall to 6000/5800-5600/5300 in the coming days.
Technically
Gold (CMP: 3640) has to sustain over 3650 for a further
rally to 3685/3705*-3730/3755*, and even 3775/3805-3825/3855 and
3900/3950-4000/4070 and 4265 in the coming days; otherwise sustaining below
3645-3635, Gold may again fall to 3575/3545-3520/3500 and 3475/3435-3415/3380
and further 3350/3335-3305/3275-3225/3200 and 3175-3115 in the coming days.
Disclaimer: I am an
NSE-certified Level-2 market professional (Financial Analyst- Fundamental +
Technical) and not a SEBI/SEC-registered investment advisor. The article is
purely educational and not a proxy for any trading/investment
signal/advice. I am a professional
analyst, signal provider, and content writer with over ten years of experience.
All views expressed in the blog are strictly personal and may not align with
any organization with, I may be associated.
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professional market analytics, you may contribute to my PayPal A/C:
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