July 16, 2025

QuickTakes

PPI Report Comes

With A Warning Label!

On Tuesday, June's CPI report was warmer than expected. Today's June PPI report was cooler than expected. Yesterday, we argued that while Trump's tariffs may not be boosting inflation, they may have halted its fall to the Fed's 2.0% inflation target. Measures of consumer price inflation may be stuck closer to 3.0% for a while as a result. This reduces the likelihood of a Fed rate cut in the near future.

However, didn't today's PPI report, showing that it remained unchanged, vindicate President Donald Trump's repeated claim that there's "no inflation," so the Fed should cut interest rates? The PPI report comes with a clear warning label: "The scope of the CPI includes imports. The PPI excludes imports." The PCED measure of consumer prices also includes imports. June's PCED will be reported on July 31. We expect to see it warming up too, from 2.3% to 2.5% y/y, as predicted by the Cleveland Fed's Inflation Nowcasting model (chart). July is also tracking at 2.5%.

Furthermore, the Cleveland Fed's model shows the core PCED tracking at 2.7% y/y in both June and July, unchanged from May's inflation rate (chart).

Meanwhile, today's uptick in June's industrial production came as a surprise, given that the June employment report showed a decline in manufacturing aggregate hours worked last month (chart).

Significant increases in petroleum and coal products, as well as in utilities, led the strength in industrial production (chart). The rebounding output of Boeing jets boosted the manufacturing sector. So did defense & space equipment. Both are likely to remain strong in the coming months.

Trump's tariffs might be giving a boost to domestic producers of appliances, furniture & carpeting. High-tech industries continue to produce more as well. The most significant negative contributor to manufacturing output was motor vehicles & parts, which has been volatile lately, but should get a boost from Trump's 25% tariff on imported autos.

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