Inflation Rises and the Markets Like It, the Fall of the Dollar, and a Scary Visit

August 17, 2025

INFLATION NUMBERS MOVE IN THE WRONG DIRECTION: Last week, the new Consumer Price Index and Producer Price Index numbers were announced. The CPI is a direct measurement of what consumers are spending on goods and services. The PPI is a measurement of what producers (wholesalers) are paying. The PPI is often looked at as a predictive measure as to what might happen to the CPI in the near future. The argument is that if producers are paying more they will likely pass those higher costs onto consumers sooner or later. For July, the CPI number was rather benign. The CPI rose 0.2%. Over 12-months, the CPI has risen 2.7%, the same as last month. So-called "core" CPI (that strips out food and energy) rose 0.3% and the 12-month number rose to 3.1%. Over the past six months, CPI is running at a 1.9% annualized rate with core CPI at 2.4%. The biggest driver of cost increases in July was in prices for services such as airline fares (up 4.0%) and dental services (up 2.6%). The PPI numbers were not benign, rising 0.9% in July, the largest monthly increase in three years. Core PPI rose an identical 0.9%. Over 12 months, the PPI is up 3.3%. Again, services rose more than goods, but PPI prices for goods rose 0.7%, still a large jump.

U.S. RETAIL SALES WERE HEALTHY IN JULY: In July, U.S., retail sales rose 0.5% from the prior month. Sales were 3.9% higher than July of last year.

A BUMPY WEEK ENDS UP BEING POSITIVE: Investors were encouraged by the inflation reports, which didn't look real encouraging. But the inflation data indicates that inflation was primarily influenced by rising prices for services, meaning the tariffs are continuing to have little impact. If this is how the Fed views it, perhaps it will lead to an interest rate reduction in September. To those investors putting their money where there mouth is, the traders buying interest rate futures, 94% now believe that the Fed will cut rates in September, up from 86% before last week's inflation reports came out. Bank and airline stocks jumped on the theory that lower interest rates will help fuel better earnings and growth. United Health stock, which has been slumping all year, rose 12% on Friday on news that Warren Buffett's company just bought a $1.6 billion position in the company.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

INTERNATIONAL STOCKS AND THE U.S. DOLLAR: The value of the U.S. dollar compared to the euro, yen, British pound, Canadian dollar, Swedish krona, Swiss franc has been decreasing for the better part of the year. From January 10 to July 1, it kept falling, with a total decrease of 11.84%.

During that same time period, the Russell 3000 (a broad index of U.S. stocks) rose 5.9% compared to a broad index of international stocks (the MSCI ACWI Ex USA) which rose 17.39%. That is a difference of 11.49%. Is it a coincidence that foreign currencies rose by over 11% while international stock outperformed U.S. stocks by almost the exact same percentage? Of course not. A primary reason for the outperformance of international stocks this year has been the devaluation of the dollar. Since July 1, the U.S. dollar has rallied a bit, rising 1.61%. The Russell 3000 has outperformed international stocks by 1.53% during the same time period.

ATLANTA FED SAYS U.S. ECONOMY STILL HEALTHY: According to running estimate of the Atlanta Federal Reserve Bank, the U.S. GDP is growing at a 2.5% annualized rate during the third quarter. (The first quarter was slightly negative and the second quarter was 3.0%). That still points to an economy growing at a healthy pace, especially when compared to other global economies.

AUTO AND HOME INSURANCE: According to a study by Bank of America, auto and home insurance rates increased 6% during the 12 months that ended May 31 of this year. The Consumer Price Index rose 2.35% during that same time. According to Bankrate.com, the median premium for auto and homeowners' insurance has increased by more than 40% since mid-2020.

I'VE SEEN TOO MANY SCARY MOVIES: I was visiting with clients last week in their home. We met at their kitchen table to go over the current state of their finances. When we were done, the wife asked if I would like to go down and see their finished basement and see "her friends." Her husband has developed some mobility issues, so he did not come down. The basement was big and beautiful, but when she took me to the TV room, I met her friends (I thought they were going to be pet birds or cats or something). I snapped pictures of her friends. A little unsettling. I made it out alive.

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

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dmacgray@stonecropadvisors.com

“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” Ralph Waldo Emerson

"If it is possible, as far as it depends on you, live at peace with everyone." Romans 12:18

SOURCES:

INFLATION NUMBERS MOVE IN THE WRONG DIRECTION: https://www.wsj.com/economy/central-banking/inflation-producer-price-index-18134c13?mod=economy_feat3_central-banking_pos1 AND https://www.ftportfolios.com/retail/blogs/economics/index.aspx

INTERNATIONAL STOCKS AND THE U.S. DOLLAR:: YCharts.com

ATLANTA FED SAYS U.S. ECONOMY STILL HEALTHY: https://www.atlantafed.org/cqer/research/gdpnow

U.S. RETAIL SALES WERE HEALTHY IN JULY: https://www.census.gov/retail/sales.html

AUTO AND HOME INSURANCE: https://www.kitces.com/blog/weekend-reading-for-financial-planners-august-16-17-2025/?utm_source=ActiveCampaign&utm_medium=email&utm_content=Weekend%20Reading%20For%20Financial%20Planners%20%28August%2016-17%29%20%5BNEV%5D&utm_campaign=NEV%20Friday%20Email&vgo_ee=0kprnbul6vGrPjfQHo%2FuB2yN1ZI%2FPYcPDJlUsrbUr%2BfJIUphMVzDYIfk6EdhwA%3D%3D%3AIVztD14oeuczI3NCgdp3j1NEZ1QqX%2BZJ#rising

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SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.