US Inflation Update
Consumer Prices (CPI): July CPI confirmed annual inflation steady at 2.7%, slightly below forecasts, as falling energy and stable food prices offset tariff-driven rises in cars and transport.
Core CPI: Accelerated to 3.1% y/y in July, a five-month high. Month-on-month, core prices rose 0.3%, the sharpest uptick in six months, largely due to shelter and services.
Key takeaway: Headline inflation is cooling, but underlying price pressures are resurfacing, echoing persistent core inflation and risk from tariffs.
July PPI – Today’s Producer Price Index Surprise
Headline PPI: Rose 0.9% m/m and 3.3% y/y in July – biggest surge in three years, far above consensus (expected 0.2% m/m, 2.5% y/y).
Core PPI: Surged 3.7% y/y, beating the 2.9% forecast, and 0.9% on the month. This signals broad-based inflation pressures across services and manufacturing, and hints at tariff-induced cost pass-through, which often trickles down to CPI with a lag.
Market Reaction:
Stocks: S&P 500 futures slipped after the report, reversing earlier record highs set Wednesday on rate cut optimism. The index held near 6,466 at last close, but momentum softened as traders recalibrate for a potentially less dovish Fed.
Crypto: Bitcoin and Ethereum fell sharply, with BTC sliding below $121,800 after peaking at $124,000 overnight. The PPI shock catalysed profit-taking as the odds of aggressive Fed easing receded.
Fed Rate Cut Prospects: CPI vs. PPI
Pre-PPI Data: Markets were fully pricing in a 25bp rate cut in September, with some speculation around a 50bp move after a weak jobs report and moderate CPI. CME FedWatch tool showed near 100% probability before the PPI release.
Post-PPI Data: The elevated PPI prompted a shift: rate cut expectations retreated, with CME probabilities dropping closer to 96% for a quarter-point cut, and less certainty about aggressive easing. Policymakers face a dilemma—labour market softness vs. sticky producer inflation.
"The market may be overly confident about a September cut. With inflation above target for 53 straight months, and now trending higher, the Fed may need to be cautious."
— Michael Brown, Pepperstone Research
Strategic Focus: The Fed is likely to watch upcoming CPI and jobs data closely before Jackson Hole on August 22. The message will likely be: "easing is coming, but not at any cost." Probability for a 50bp cut now hinges on further labour market weakness or unexpectedly soft CPI, not today's hot PPI.
Implications for US Equities
Near-Term: The S&P 500 and Nasdaq traded at record highs this week on rate cut hopes. Momentum tech/growth stocks and cyclicals benefited most.reuters+3
PPI Shock: Today’s surprise prompted a re-pricing; futures slipped, volatility rose. A slower pace of rate cuts could limit upside for the most rate-sensitive sectors, especially if profit margins across manufacturing and services come under renewed cost pressure.reuters+3
Medium-Term: A single shallow cut in September will help underpin higher valuations but leaves the market vulnerable to future inflation surprises, especially in consumer goods and industrials that are exposed to tariffs and input costs. Sector rotation may accelerate toward defensives and quality growth names.
Implications for Crypto Assets
Pre-PPI Rally: Bitcoin hit an all-time high above $124,000, with institutional ETF flows and Trump administration crypto-friendly signals boosting sentiment.
PPI Reaction: Crypto assets sold off quickly as sticky inflation revived concerns about longer-lasting high rates. Bitcoin dropped to ~$121,800, Ethereum below $4,700.
Why? Crypto is highly sensitive to liquidity and macro volatility. Fewer or smaller rate cuts mean the cost of capital and opportunity cost for holding risk assets (incl. BTC/ETH) remains high.
Forward View: If Fed signals patience on cuts, crypto volatility could increase but the medium-term uptrend remains, supported by institutional adoption. Prolonged uncertainty or surprise hawkishness would cap rallies in the immediate future.
Key Tactical Themes
Watch Jackson Hole: Fed Chair Powell may push back on aggressive cut expectations, emphasizing data dependence and inflation vigilance.
Equity strategy: Favour quality, defensives, resilient tech, and companies with pricing power. Expect sector rotation if profit margins compress amid cost shocks.
Crypto strategy: Maintain core allocation, avoid leverage, diversify into ETH and selective altcoins. Volatility will likely persist until the Fed clarifies its trajectory or inflation signals resolve.
Conclusion
Today's PPI shock injects fresh uncertainty into the rate cut outlook. While odds still favor Fed easing next month, the magnitude and pace are now more tentative, which matters for both equities and crypto. Persistent inflation risks and sticky producer prices mean markets must remain data-dependent and tactically agile.
Next Update: Focus on Fed's Jackson Hole comments and August CPI for confirmation of trend direction and cross-asset allocation pivots.
Risk Disclaimer: This analysis reflects current market conditions as of August 14, 2025. Rapid changes in economic data, geopolitical developments, or central bank communications could materially alter the outlook. Diversification and appropriate risk management remain essential in the current environment. None of this is financial advice, Wizard Macro Research cannot be held responsible for any losses