by Louis Navellier
August 19, 2025
Last week, two major inflation indicators were released. First, on Tuesday, the Labor Department announced the Consumer Price Index (CPI) rose 0.2% in July and 2.7% in the past 12-months. The more widely watched “core” CPI, excluding food and energy, rose 0.3% and 3.1% in the past 12-months.
Dipping into the details, energy costs declined 1.1%, aided by a 2.2% decline in gasoline prices. Shelter costs (owners’ equivalent rent) rose 0.2% in July and 3.7% in the past 12 months. Overall, the CPI came in slightly below economists’ consensus estimates and Treasury yields declined, indicating that the Fed may finally make its first 2025 rate cut when the Federal Open Market Committee meets in September.
A bigger surprise came on Thursday, after the Labor Department announced that the Producer Price Index (PPI) surged 0.9% in July and is now running at a 3.3% annual pace. Economists were only expecting a 0.2% increase. Excluding food, energy and trade margins, the core PPI rose a more moderate 0.6% in July and 2.8% in the past year. Wholesale food prices rose 1.4% in July, while wholesale energy prices gained 0.9%. Trade margins surged 2% in July, so, the “older” core PPI would have risen by only 0.4% in July.
A 1.1% increase in service costs was the primary culprit behind the PPI surge. One reason is that a strong stock market caused investment management fees to increase! Also, wholesale goods prices rose 0.4%, so the tariffs were not a big cause of the surge in the July PPI. A 0.8% surge in processed goods was largely attributable to an 11.8% surge in wholesale diesel prices, so the details do not reveal recurring inflation. I was pleased that Treasury yields did not increase much after the PPI report, making a rate cut more likely.
Treasury Secretary Scott Bessent appeared on Bloomberg Surveillance on Wednesday, calling for the Fed to cut key interest rates by 150-basis points this year, commencing with a 0.5% cut at its September FOMC meeting. Specifically, Bessent said, “I think we could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” saying economic models suggest “We should probably be 150, 175 basis points lower.” Interestingly, after the Labor Department slashed the May and June payrolls by a cumulative 258,000 jobs, Bessent said, “I suspect we could have had rate cuts in June and July.”
There has been a lot of talk lately about food inflation. However, global rice prices are now at their lowest level in the past eight years after record harvests in Asia as well as the removal of an Indian export ban on rice. The global rice benchmark, namely “broken white rice,” has fallen 27% in the past year and is now at its lowest level since 2017. Also, the United Nations has an “All Rice Price” index that is down 13% this year. India’s export curbs back in 2008 caused the price of rice to rise, but with India’s export ban now being lifted, the market for white rice has collapsed, because there is virtually no demand from countries like Indonesia and the Philippines. India’s warehouses hold 60 million tons of rice, 33% higher than normal this time of year, so the price of rice will likely remain low while excess inventories persist.
The other major index that came out last week was retail sales. On Friday, the Commerce Department reported that July retail sales rose 0.5%, slightly below economists’ consensus estimates. The real surprise was that June’s retail sales were revised up to a 0.9% increase (from 0.6% previously reported). Auto sales surged 1.6% in July, but excluding vehicle sales, retail sales rose only 0.3%. The good news is that nine of 13 industries surveyed improved in July, and there were pleasant surprises, like home furnishings rising 1.4%. July’s retail sales were influenced by Amazon Prime Day, but online sales only rose 0.8%.
After the June retail sales revision, economists may revise second-quarter GDP estimates higher. Overall, consumers are still spending, but they remain cautious, so back-to-school sales will be the next big test.
“Musical Chairs” Continue in Key Economic Positions
Speaking of federal statistical data, I should add that President Trump has nominated, E.J. Antoni, Chief Economist at the Heritage Foundation, to lead the Bureau of Labor Statistics (BLS). Antoni is a long-time critic of the Labor Department’s handling of jobs data. His position requires Senate confirmation, and I suspect that his confirmation hearing will be more colorful than normal, but he is likely to be confirmed.
Also, on Truth Social, President Trump has called for Goldman Sachs to replace its chief economist, Jan Hatzius, due to his past predictions that tariffs will be inflationary. Specifically, Trump said that Goldman Sachs should “Go out and get himself a new Economist,” because the bank made a “bad prediction a long time ago” on the market and tariffs. A recent report by Hatzius and his team provided an analysis that found U.S. consumers had absorbed 22% of tariff costs through June but will eventually absorb 67% if recent tariffs follow the same pattern as earlier tariffs. Clearly, that report irked President Trump, as President Trump pointed out that tariffs haven’t caused inflation or other issues for the U.S. economy.
One economic report that President Trump probably liked is the Barclays report that the weighted-average tariff rate (the average of all tariffs), adjusted for import volume from each country, is around 9%, well below the 12% rate economists had previously estimated. In other words, the tariff impact is not as severe as many economists had anticipated, plus the actual tariffs turned out to be lower than previous estimates.
In other words, when it comes to tariffs, many economists cannot hit the broad side of a barn!
One reason the Trump administration has loaded Brazil down with super-high tariffs is their rising trade profile with Russia. Since Russia invaded Ukraine, Brazil has tripled its trade with Russia and is one of the largest buyers of Russian diesel fuel and fertilizer. Now that Brazil is subject to 50% U.S. tariffs (excluding orange juice and aircraft components), its extensive trade with Russia could hinder its relations with the U.S. Originally, the U.S. raised tariffs on Brazilian imports from 10% to 50% to protest Brazil’s President Lulu da Silva from prosecuting former President Jair Bolsonaro on “coup” charges. However, Lulu is very stubborn – as he was sentenced to jail back in 2017 for money laundering in “Operation Car Wash” and spent 580 days in prison, so it will be interesting to see if Lulu da Silva will talk to President Trump, since he feels that he is being “disrespected,” so Brazil is suffering from an unfortunate impasse.
Turning to Europe, Eurostat reported on Thursday that industrial production plunged 1.3% in June. This was substantially higher than the economists’ consensus estimate of a 0.9% decline. An 11% decline in Ireland due to a drop in pharmaceutical exports (likely tariff related) led the drop in industrial production.
Also, Germany’s industrial production declined 2.3% in June, likely due to tariff concerns. In contrast, France’s industrial production rose 3.8% in June, due mostly to Airbus production. Now that the EU tariffs are set at 15%, industrial production will likely improve there in the upcoming months, but there is no doubt that the on-shoring to America may become a persistent drag on the EU’s industrial production.
In other European news, Ola Källenius, CEO of Mercedes Benz and also the President of the European Automobile Manufacturers’ Association (ACEA), warned that if the European Union’s (EU) sales ban on new combustion-engine cars remains in place for 2035, it could cause Europe’s automotive industry to implode. Specifically, Källenius said, “We need a reality check. Otherwise, we are heading at full speed against a wall. Of course, we have to decarbonize, but it has to be done in a technology-neutral way. We must not lose sight of our economy.” The EU’s 2035 ban is not set in stone, as it is scheduled for review in the coming months. However, as recently as March, the European Commission, the EU’s executive arm, reaffirmed its commitment to zero CO₂ emissions. It will be interesting to see what the EU does and if they continue to fine auto manufacturers, like Stellantis, for failing to meet CO₂ emission standards.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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