Inflation Comes in for a Summer Scorcher

Wow! I know I said I was going to hold off on covering the full scope of inflation news until my weekend Deeper Dive, but, WHEW! what a burner! As it turns out, I can’t pass by today’s biggest economic news without commenting. I just can’t make myself do it. This was a hot, hot summer day for inflation! Even CNBC’s famous bobbling, talking head, called today’s report a “whopper!”

Rick Santelli flipped his lid over higher-than-expected inflation numbers, a blow to President Donald Trump’s crusade for an interest rate reduction and his firing of the BLS chief.

Today’s report looked almost as though the BLS chief who was terminated scored her revenge with her last report as she went out the door (except that I’m certain it is accurate, not really revenge, but Trump will likely brand it as a fake-news effort by her to get even and proof that she had to go).

On Thursday morning, the Bureau of Labor Statistics released a PPI (Producer Price Index) report that showed much higher inflation than expected….

And an increase in producer prices was already expected.

Santelli was stunned as he read the news on Thursday morning’s edition of CNBC’s Squawk Box, exclaiming “Oh my goodness!” at the “whoppingly big” increase and hinting at interest rate increases….

Yes, it hints at Fed rate increases! Ooo! Big Don won’t like that! Not only did the month jump 9/10’s of a percent—almost a full percent price hike in just one month, bearing in mind the 2% target the Fed has is for a full year’s worth of inflation, so we’re halfway there in a month—but the core inflation rate that I wrote about on Tuesday (excludes energy and food) also jumped up 9/10s of a percent. Now, when you consider that the big savior for the Consumer Price Index on Tuesday was energy, which had gone down in CPI, what does this say for the next CPI report when these producer prices work their way down the line to consumers? This is what is coming, Folks.

The greed-obsessed stock market, of course, took it all in stride, as if it was nothing. Total denial! Although bond yields bounced up, being more reactive to inflation, stocks started down in concern but then talked themselves up to close flat, as investors chose to keep their heads buried in hot sand, pretending there is no serious economic damage to come from screaming inflation.

This jolt, just up the pipeline from where consumers stand, was so big that even Zero Hedge, which has been consistently pumping Team Trump’s baldfaced lie that tariffs would cause no inflation (or, at worst, a one-time bump), had to admit (while doing their best to step around the fact that they were dead wrong) that this report was screaming hot:

accelerate it did - dramatically with headline PPI rising 0.9% MoM (massively more than the +0.2% expected and the biggest jump since June 2022) sending PPI up 3.3% YoY (highest since Feb 2025).

The hardest hit came in the services sector, which, as I’ve mentioned, is 80% of the economy as measured in GDP:

ZH notes that July’s shift that was just reported has taken year-on-year inflation for Core CPI back up to 3.9%—almost back to the 4% zone … in just one month. Imagine how hot it would be if you annualized this one-month change. You’d be around 12%; but, of course, we have no way to know what size jumps the next 11 months will bring, so that’s an abstract number. (Year-on-year inflation looks backward from where we were a year ago to where we are now. Annualized inflation looks forward to where the annual inflation rate will wind up if things keeps compounding at this rate over the next eleven months.)

July’s month-on-month change delivered the biggest added bite out of retailer’s pocketbooks (from their suppliers/wholesalers) since March of 2022. Just the services side of the economy actually rose 1.1% in the month of July, compared to a 1.3% rise back in March 2022 when the Fed first started raising rates to knock inflation down. In other words, that goes clear back to before the Fed had had any success in knocking inflation down!

Bringing it home

What will become particularly critical and painful for many people: the average cost of fresh and dried vegetables leaped up an enormous 38.9%!—almost a 40% increase in one month! You haven’t seen that yet in your shopping because that is on the producer side (what your retailers are seeing in their cost increases), and retailers are still in the mode of taking the losses from tariffs on the faint hope that all these tariffs are just going to TACO away.

However, you can be sure retailers will not be sitting long on increases of that size. Groceries—being shoppers’ most price-sensitive and intensely competitive high-volume area—don’t have profit margins that are anywhere near large enough to absorb that, except at a big loss. So, the pressure cooker is likely ready to blow.

In summary, CNBC said,

Wholesale prices rose far more than expected in July, providing a potential sign that inflation is still a threat to the U.S. economy, a Bureau of Labor Statistics report Thursday showed.

Ya think?

I expect Trump will be telling us he’s sure glad he fired that nasty woman at the BLS who created this lie! Your lie detector, however, will be to watch what happens in the vegetable section of your grocery store as these producer prices push their way through to your produce shelves.

PPI feeds into the Commerce Department’s Personal Consumption Expenditures Index (PCE), which will be updated near the end of the month. Since that is the Fed’s favored gauge, it looks like those longed-for Fed rate cuts in September are imperiled … at least, if these prices make it into the PCE gauge that quickly. It may, however, take another month to work their way down the pipe as grocers do their best to buffer the shock. Lunatic markets, however, have barely changed their bets on whether the Fed will cut rates.

“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.”

They always do eventually. Businesses don’t eat these costs and put up with low or no profits or even losses for long. They may retain some of the reduction in profits for awhile because consumers are ready to go on buying strikes, but there is a lot of pressure pushing these cost increases your way. They will all eventually make it to you. It’s just a question of how clogged the pipe gets due to retailer fear of consumer revolts and loss of market share to any competitor who holds out a little longer. That’s a game of attrition where some retailers hold out for a little while, hoping it kills of their competition.

This also says that foreign suppliers are not adjusting their prices downward to pay the tariffs for us. Since I find it hard to believe that rich, successful guys like Scott Bissent are dumb enough to believe that is how tariffs work, I have to think they know they are lying through their smarmy, smiling teeth when they keep repeating that gross untruth to America.

As I pointed out before, Bissent made his billions in consort with George Soros by betting against the British pound at a level that assured its crash. Could be a stellar reason to want to take a comparatively low-paying job as US Treasurer. Why not crash the pound’s replacement global currency—an even bigger bet—and smile all the way, thinking about how you’re going to make bank? (That or these guys are just truly dumb!)

I also have to wonder at what will happen to $Trump, Trump’s crypto currency, as the dollar crashes in value due to soaring inflation and, even more, due to a crumbling Treasury market, taken down by tariffs that leave foreign backs with a lot less need for dollars (moved in the the form of US Treasuries) to make their foreign exchanges.

I’ve been laying that out here for some time. Today’s news tell you that was, all along, a window on the news that was actually coming.

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