CPI up, PPI down, rates headed lower

We’ll look together at all the latest data on U.S. inflation, what Donald Trump says about interest rates, and what all this means for our investments.

More specifically, we’ll first examine what the Producer Price Index (PPI) showed, then what the Consumer Price Index (CPI) told us, and of course, we’ll conclude with what the FED is expected to do at its September 17th meeting.

PPI

We start with the PPI, the producer price index—that is, inflation at the business level. This index acts almost like a “warning signal” for the CPI, because it shows the pressures faced by businesses themselves.

The index for August fell by 0.1% on a monthly basis, while analysts had expected a rise of 0.3%.

This is a significant surprise, especially if we recall that in July we saw a +0.7% increase. On an annual basis, the PPI slowed to +2.6%, down from +3.1% the previous month. So we clearly see a downward trend.

Even more important, however, is the core PPI (excluding volatile food and energy). It also fell -0.1% monthly, versus expectations for +0.3%. On a yearly basis, it came in at +2.8%, well below the expected +3.5%.

Most of this decline is due to lower profit margins for wholesale machinery and automobiles, with a notable -3.9% drop in that sector. This is important because it means that companies themselves are absorbing cost increases rather than passing them on to the final consumer. That translates into less pressure on businesses, less price pass-through, and less urgency for the FED.

CPI

Now let’s turn to the CPI, the consumer price index. This shows what’s happening in the consumer’s pocket.

The headline CPI rose 0.4% in August, above the forecast of 0.3%, and also above July’s 0.2%.

On a yearly basis, it came in at 2.9%, exactly as analysts expected. Not perfect, but not a red flag either.

The core CPI (excluding food and energy) rose 0.3% monthly, and remained at 3.1% annually, stable in both cases.

And what drove this increase?

• Housing (+0.4%)

• Food (+0.5%)

• Energy (+0.7%), with gasoline up +1.9%

Special mention was made of increases in:

• Airfares (+5.9%)

• Used cars (+1%)

• Clothing (+0.5%)

On the other hand, some categories like medical care, recreation, and communications saw slight declines.

The overall picture? Inflation hasn’t disappeared, but it’s not out of control either. There’s no sign of runaway price growth, and most analysts agree the index is moving at manageable levels. It’s stable enough to allow the FED to cut rates without panic.

TRUMP’S INTERVENTION

And now… Trump enters the scene.

After the PPI data, he wrote on Truth Social:
“Just out: No Inflation!!! ‘Too Late’ must lower the RATE, BIG, right now.”

In other words, he’s not just calling for a rate cut—he’s demanding a big, immediate one. Clearly, Trump sees the data as proof that inflation is no longer a problem. Therefore, in his view, the FED should start cutting rates now, aggressively.

It’s worth noting that Trump has traditionally pushed for low rates, seeing them as a key tool to support the economy and boost markets. But, of course, the FED doesn’t take orders from the president—it has its own plan.

WHAT THE FED WILL DO

So far, the market expects with absolute certainty a 25-basis-point (0.25%) rate cut, and the FEDWatch tool shows a 100% probability of this move. Investors are convinced easing is coming.

And the data we’ve reviewed reinforces this outlook:

• The PPI shows pressures on businesses are easing.

• The CPI shows a slight increase in consumer prices.

• The labor market has already shown signs of weakness in recent weeks.

Everything points to the FED beginning to cut rates. The only question is the pace at which it will proceed, and how it will balance supporting the economy with avoiding a resurgence of inflation.

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