Stocks Mark New Records on Lighter-Than-Expected CPI: Aug. 12, 2025

This morning’s weaker-than-expected CPI report is sending stocks to fresh all-time highs as the print reinforced the notion that tariffs have yet to produce significant inflation. The soft numbers have fixed-income watchers dialing up the odds of a Fed reduction next month to a near certainty while penciling in approximately another 40 basis points of easing by year-end. Risk-on sentiments are dominating markets against this backdrop, with investors picking up equities in all 11 major sectors. The bullishness extends to bitcoins, forecast contracts as well as the copper, silver and gold metals. Conversely, folks are unwinding hedges as illustrated by lighter prices for volatility protection instruments and reducing their exposures to the greenback on narrowing rate differentials, while the lumber, natural gas and crude oil commodities face selling pressure. The yield curve, meanwhile, is descending in bull steepening fashion led by the short-end because these securities are benefiting from increased expectations for monetary policy accommodation, but strong growth forecasts and elevated term premiums are curbing gains for duration.

Inflation Remains in Check

This morning’s Consumer Price Index (CPI) reflected stabilizing inflation amidst categories that are experiencing limited effects from tariffs. The 0.2% month-over-month (m/m) and 2.7% year-over-year (y/y) increases for July arrived in-line for the former but a tenth of a percent lighter on the latter. Overall, the upticks were weaker than June’s 0.3% and 2.7%. The core category, which excludes food and energy due to their volatile characteristics, was hotter, however, rising 0.3% and 3.1% during the period, stronger than the 0.2% and 2.9% from the preceding interval. Additionally, the annualized number surpassed the 3% economist consensus expectation.

Core Goods Aren’t Enough to Move the Needle

Despite folks being worried about price pressures for goods in today’s CPI, it was non-housing services that generated increases in the report. Indeed, both transportation and medical care services posted sharp upticks of 0.8% m/m. The former was driven by a significant jump in airline fares, potentially indicating a strong recovery in discretionary spending. Elsewhere, used automobiles, food at restaurants/bars, shelter and apparel saw charges expand 0.5%, 0.3%, 0.2% and 0.1%. New cars were unchanged, but gasoline, energy services (electricity & heating) and food at markets experienced m/m deflation of 2.2%, 0.3% and 0.1%. Some more specific areas sensitive to trade, like toys, sporting goods and furniture, became costlier, but those components aren’t enough to meaningfully move the needle over time.

How Much Evidence Is Needed?

Wall Street is taking this morning’s CPI in stride as the case remains that an average tariff rate of 15% won’t be enough to significantly propel inflation figures. And while the numbers quelled concerns related to core goods, for now, services pricing power is not a terrible thing for the macroeconomic environment. Indeed, heavier airplane fares indicative of rising consumer confidence and improving household shopping behaviors are a terrific dynamic coming off of a first half that saw depressed personal expenditures. Stocks are making new records today because there’s little evidence of accelerating price pressures which is highly supportive of Federal Reserve rate cuts in the next few meetings, starting in September. Meanwhile, servicer ability to charge higher prices signals recovering momentum while a potential rebound in hiring helped by monetary policy accommodation bodes extremely well for the economy and corporate earnings going forward. Finally, 15% levies on physical products amounting to just 20% of the CPI is too limited to derail the cycle and odds are climbing that the Trump trade experiment may very well work out.

International Roundup

Singapore GDP Revised Higher

Global trade uncertainty has eased modestly but it continues to overshadow optimism for Singapore’s economy, despite the island-nation’s gross domestic product (GDP) growing 1.4% quarter over quarter (q/q) from April through the end of June, according to the Ministry of Trade and Industry (MTI). The result, a reversal from the first-quarter’s 0.5% decline, matched the economist consensus estimate and the initial read. Relative to the second quarter of 2024, GDP was up 4.4%, surpassing the 4.3% from the advance estimate and accelerating from the 4.1% print of the first three months of this year. Front-loading of purchases from US buyers to avoid tariffs provided a significant contribution to the recent results.

The MTI now estimates that 2025 GDP growth will range from 1.5% to 2.5%, an increase from its previous estimate of 0.0% to 2%. It points to recent US trade deals with the Eurozone, Japan, South Korea, and several Southeast Asian nations as examples of easing trade tensions. Nevertheless, geopolitical uncertainty continues to be a challenge for the economic growth of Singapore and the nation’s trading partners.

UK Payrolls Decline Again

The number of payrolled workers shrank by 8,000 in July relative to June and by 164,000 compared to the year-ago period, according to preliminary estimates from the Office of National Statistics (ONS). The contraction follows June m/m and y/y declines of 26,000 and 149,000.

The ONS’ favored survey, the HM Revenue and Customs Pay as You Earn Real Time Indicators, shows that payroll has dropped in 10 of the last 12 months. The May to July period, furthermore, experienced a 44,000 q/q drop in job vacancies, marking the 37th consecutive decline.

Encouragingly, unemployment claims in July fell by 6,200 after dropping by 15,500 in June while economists expected a 19,700 increase.

The UK’s unemployment rate, as a three-month moving average, meet the economist consensus expectation and was unchanged at 4.7% while average earnings ex-bonus climbed 5% y/y, consistent with the forecast and May’s result.