Market Minute: August 12th, 2025
This is the first post of our regular market updates pertaining to breaking news. This morning, the latest release of the Consumer Price Index (CPI) from the Bureau of Labor Statistics reported that the CPI rose 0.2% for the month and 2.7% over the last 12 months. This was slightly better than the consensus expectation of 2.8% annual inflation.
The “headline” CPI index is often compared to a so-called “core” index that excludes the price impacts of food and energy. An obvious observation is that we all use food and energy, so it seems counterintuitive to factor that out of the inflation calculation. The reason the “core” statistics are calculated without them is that their prices can be highly volatile, potentially distorting the overall inflation trend. When food and energy are factored out, the “core” inflation rose 0.3% for the month and 3.1% over the trailing 12 months. Driving around Shelton, CT. I have seen gasoline prices dip below $3, and oil is down about $8 per barrel since the beginning of the year.
On the one hand, inflation is not accelerating to much higher levels, but on the other, it remains well above the Federal Reserve’s target 2% target. For this reason, the Fed may remain on hold regarding lowering interest rates. We are watching for the worrisome environment of stagflation. This term was coined by economists in the 1970s to describe an economic environment of above-average inflation combined with below-average economic growth. The Fed may be willing to risk a slower economy in order to tame inflation, and we are certainly seeing some cooling in the economy already, as the job market has slowed since the beginning of the year.
Economists are also assessing the impact tariffs are having on economic activity. Typically, higher tariffs translate into higher consumer prices. Given the current administration’s focus on oil production, it’s not surprising that headline inflation is declining alongside falling oil prices.
Of course, one month’s data does not establish a trend. In the months ahead, we will continue monitoring employment, inflation, and overall economic activity to refine our outlook for inflation and growth. We do believe that tariffs will have an inflationary impact on the economy, negatively impact consumers, and likely slow economic growth. Whether that slowdown will be enough to halt the economy’s momentum or tip us into inflation remains the key question. More to come on this, but please reach out if you’d like to discuss the economy or your portfolio.
