Hot PPI Pauses Market Rally, Diminishes Expectations For a 50-Bp Cut: Aug. 14, 2025

Markets are taking a break from their record run after this morning’s PPI print posted the fastest pace of wholesale inflation in 40 months. But the upside beat was driven by an unexpected reason, as services cost pressures drove the headline result north. While an acceleration in wholesale prices is certainly not welcome per se, the source of the price pressures helps quell concerns of tariff-fueled charge forces. Meanwhile, the momentum in services is signaling company pricing power, which is indicative of a reaccelerating economy and isn’t a terrible thing. Unemployment claims, also out this morning, were little changed and continue telling the story of a lack of layoffs amidst subdued hiring. Investors are selling stocks in all sectors as well as Treasuries across the curve, as this morning’s data pared back enthusiasm related to a potential 50-bp cut from the Fed next month while bolstering inflation expectations. Additionally, silver, gold and copper enduring losses. Conversely, volatility protection instruments are catching bids as well as crude oil, lumber and natural gas.

PPI Soars Last Month

Wholesale inflation soared last month, according to this morning’s July Producer Price Index (PPI). The headline leaped 0.9% month over month (m/m) and 3.3% year over year (y/y), marking the sharpest increases since March 2022 for the monthly number and last February for the annualized. The print depicted broad-based pressures across commodities, services and goods. Food, services overall, energy and core goods climbed 1.4%, 1.1%, 0.9% and 0.4% m/m. Within services, trade, transportation/warehousing and the other component saw upticks of 2%, 1% and 0.7%. More specifically, the hot publication was driven by cost gains in machinery and equipment wholesaling, the securities-related category, travel accommodation businesses, automobile retailing and truck cargo activities.   

Unemployment Claims Are Still Range Bound

Unemployment claims remained pretty flat in the past two weeks and appear to be stabilizing near 220,000 on the initial segment and 1.95 million on continuing. First-time filings declined to 224,000 during the week ended August 9, beneath the 228,000 median estimate and the 227,000 from the preceding seven-day period, according to data released this morning. Continuing applications also fell, hitting 1.953 million in the reporting interval culminating on August 2, below the 1.960 million expectation and the 1.968 million from the previous print. Four-week moving averages climbed modestly north for both, however, from 221,000 and 1.950 million to 221,750 and 1.951 million.

Services Inflation Isn’t Terrible, Signals Reacceleration

Similar to last week’s Consumer Price Index, today’s PPI reflected services pricing power. Airlines and securities activities are likely seeing higher prices due to households finally embarking on discretionary ventures after taking it easy during the first half of the year while asset appreciation and enthusiastic animal spirits are leading to greater interest in brokerage and advisory businesses. But tomorrow’s retail sales report is going to provide many clues concerning the momentum of consumption and whether the second half of this year will offer the reacceleration that I’m looking for. The print is for the month of July, and I believe that shoppers left their homes with their wallets and pocketbooks in stride on the back of buoyant capital markets, stable employment conditions, subdued inflation, improved confidence and an increase in relative certainty.

International Roundup

UK Growth Exceeds Expectations

The United Kingdom’s gross domestic product (GDP) grew 0.3% quarter over quarter (q/q) and 1.2% y/y during the April through June period, according to preliminary estimates from the Office of National Statistics. The results surpassed the economist consensus estimates of 0.1% and 1% but weakened from the 0.7% and 1.3% first-quarter prints. Construction activity increased 1.2% despite work being expedited for completion prior to the implementation of a stamp tax on real estate transaction. Other activity was pulled forward by US purchasers stocking up on inventory prior to the implementation of tariffs.

Despite those factors, output increased in 11 out of 20 subsectors. Construction led while the services sector grew 0.4%. Conversely, production sank 0.3%. Business investment was a weak spot, however, declining 4% q/q after increasing 3.9% during the first quarter. The result missed the economist consensus estimate of 0.1%. Business investment was up only 0.1% from the same period in 2024 following a 6.1% gain in the preceding period. 

BOC Members Lack Consensus on Future Policy

Investors seeking guidance on future Bank of Canada policy decisions received little clarity yesterday with minutes from the organization’s July 30 meeting showing that central bankers have mixed views on the organization’s future actions. The BOC decided in July to hold its key rate steady at 2.75% while assessing the resiliency of the economy in the face of US tariffs, according to the summary. Some policymakers said they believe the rate is in the middle of the bank’s neutral range and is providing sufficient support to the economy. Other members, however, pointed to slack in the economy and said additional easing may be needed, especially if the labor market continues to soften. 

Euro Area GDP Grows Marginally

Euro area GDP grew only 0.1% in the second quarter, matching the economist consensus forecast but slowing considerably from the 0.6% advance during the first three months of the year. On a y/y basis, GDP was up 1.4%, slightly lower than 1.5% in the preceding period but consistent with expectations.

During the second quarter, total employment grew by 0.1% relative to the first quarter, slower than the 0.2% q/q result in the first three months of the year. In a related matter, June industrial output fell 1.3% on the month, largely a result of a decline in Germany and slowing production of consumer goods. Economists anticipated a 1% decline.

South Korea Import and Export Prices Fall

Prices for both South Korea imports and exports declined at a slightly slower pace last month than during June. Export and import stickers fell 4.3% and 5.9% y/y, respectively, compared to the 4.5% and 6.2% y/y declines in June. While export prices have fallen for two consecutive months, stickers for imports have declined for three.

Australia Unemployment Rate Falls

Australia’s unemployment rate fell from 4.3% in June to 4.2% last month, matching the economist consensus forecast. During July, the total number of employed individuals increased by 24,500, according to the Australian Bureau of Statistics. The result underperformed the forecast for 25,300 additions, but it was up considerably from 1,000 in June.