Producer Price Inflation beyond Energy: “Core” PPI Accelerates to 4.7%, Services PPI to 4.6%. Lots of Inflation Going on in Here

Energy prices plunged in June off the spike in the prior months. And this plunge in energy prices spread through the Producer Price Index final demand (PPI), which tracks inflation in prices that companies pay each other, and which dropped by 0.28% seasonally adjusted in June from May (annualized -3.3%, blue in the chart).

Year-over-year, the PPI rose by 5.5%, still a lot of inflation, but lower than the multi-year high in May (red). It has been zigzagging higher ever since the low point in mid-2023.

Beyond the plunge in energy, producer-price inflation accelerated in June from May and year-over-year because inflation in services accelerated.

The services PPI rose by 0.21% in June from May (+2.5% annualized), seasonally adjusted, after the negative reading in the prior month.

Year-over-year, the services PPI accelerated to 4.6% (red line). That’s a lot of inflation in services. It has been zigzagging higher since the December 2023 low. (…)

The PPI for core goods, which excludes energy and food components, rose by 0.19% (+2.3% annualized) in June from May, seasonally adjusted, on top of the spikes in the prior two months (blue line in the chart below).

The year-over-year core goods PPI rose by 5.1%, a slight deceleration from the prior month, and both were the worst since February 2023 (red line). It has been zigzagging higher since March 2024. (…)

Core PPI Final Demand, which excludes energy and food components, accelerated to +0.20% (+2.4% annualized) in June from May, seasonally adjusted (blue in the chart below).

Year-over-year, core PPI accelerated by a hair to 4.7%. The last three months were the worst since January 2023. It has been zigzagging higher since the low in December 2023 (red in the chart below). (…)

These next charts show the price level of the energy  and food PPI, rather than the percentage change.

 

BTW:

• Wheat Hits Two-Year High as Black Sea Attacks Spur Supply Fears

(…) Russia is the world’s largest wheat exporter, and together with Ukraine the two countries rank among the world’s leading grain suppliers. The Black Sea acts as the crucial artery connecting their crops with global markets.

“While there does seem to have been a bit of a focus on wheat, there is the potential for disruptions to Black Sea shipments to cause broader food price inflation,” said Mike Verdin, senior markets consultant at CRM AgriCommodities. “This risk would be enhanced if disruption spreads to fertilizer too.” (…)

Ukraine has already lost about a third of its grain export capacity through its Black Sea ports because of intensifying Russian strikes, Reuters reported, citing the Ukrainian Agrarian Council. “Both Russia and Ukraine seem to be focused on limiting each other’s export revenue and that is bullish,” the Hightower Report said in a note on Wednesday. (…)

A few charts from Ed Yardeni:

Ed today expressed unusual concerns on inflation:

This week’s batch of cooler-than-expected PPI and CPI inflation numbers for June certainly calmed concerns on that front. As a result, the likelihood of an imminent Fed rate hike has become less likely, with the federal funds rate futures market now moving toward one rather than two such moves over the next 12 months.

On the other hand, the core PPI final demand for personal consumption rose 4.8% y/y in June, its highest since late 2022. The June PPI report confirms that price pressures remain in the pipeline. Core PCED excluding shelter rose to 3.5% y/y in May. Both suggest that the subdued 2.1% y/y increase in June’s core CPI excluding shelter might be misleading. To be or not to be complacent?

Here is something else to worry about: The New York Fed’s Global Supply Chain Pressure Index continues to exhibit a tight correlation with CPI goods inflation. With supply-chain pressures remaining elevated in June, goods inflation is likely to remain firm in the near term.

Ed is also concerned by other kinds of inflation:

Our favorite Bull/Bear Ratio rose to 3.12 last week, well above its historical average, suggesting that investor optimism has become increasingly widespread and may be approaching excessively bullish territory in the near term.

Furthermore, June’s BofA Global Fund Manager Survey shows investors increasingly anticipate a Roaring 2020s outcome, with an AI-driven productivity growth boom and no Fed tightening. A record percentage of respondents expect a “no landing” global economy, and their cash levels are extremely low. All that triggered BofA’s contrarian sell signal.

The buying of US equities by foreign investors tended to be a contrarian indicator in the past. They loaded up on US stocks near the tail end of the previous three bull markets. Be warned: Over the past 12 months, they purchased a record-busting $903.8 billion!

But don’t worry, the Fed is not:

Fed’s Warsh says AI price surge is real but not inflationary

(…) “I don’t view a one-time change in prices as necessarily being inflationary because I think there’s a supply response; in that way this is different from a foreign conflict and what it might do, which tends to reduce the supply side of the economy,” Warsh said. He added that prices may rise over the next 12 months but noted that whether this becomes inflationary depends on Federal Reserve action.

The Fed chairman said artificial intelligence will create jobs in both the short and long term, though the medium-term impact on employment could be disruptive. Warsh told the committee he cannot guarantee there will be no disruption or provide comfort on jobs in the short term.

Warsh said wages have grown at a reasonable pace but called the timing of when wages will increase more from productivity gains a “puzzle.” He confirmed that the surge in prices from AI is real but pointed to business capital investment contributing substantially to GDP, a trend he expects to continue.

Hmmm…

NY Fed President Williams yesterday as reported by @neilsethinew:

He points to “three drivers” of the excess inflation: tariffs, supply chain disruptions (including energy), and AI related demand.

But he goes on to say “there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters.” Williams says:

-“the direct effects of existing tariffs on prices appear to have in large part played out,”

-“shelter inflation should remain on the downward trajectory observed over the past three years,”

-“based on oil prices today and futures market pricing into next year, it appears that prices for energy and related goods have likely peaked,”

-“the supply-demand imbalances stemming from AI-related investment should recede over time as more supply comes online,” and

-“we do not see evidence of the labor market adding to inflationary pressures.”

That informs his continued belief that “the current stance of monetary policy is well positioned” to bring inflation down to 2%, which he forecasts will happen in 2028 (ending the year at 3.25%).

Fed’s Beige Book Shows Slight to Moderate Growth Across US

US economic activity increased at a slight to moderate pace in recent weeks as most regions experienced little to no change in employment levels, the Federal Reserve said.

Prices increased moderately overall, according to the US central bank’s Beige Book survey of regional business contacts released Wednesday.

“Some contacts tied these cost increases to the conflict in the Middle East; others mentioned tariffs. Consumer prices continued to rise, and a few districts said contacts saw greater price sensitivity among their customers,” the Fed said.

The report was based on information collected by the Fed’s 12 regional banks through July 6 and compiled by Chicago Fed. (…)

Some additional details:

• Several Districts noted declines in spending on discretionary items or trading down to more affordable varieties.
• Auto dealers reported little change in sales, but spending on repairs grew as consumers held onto vehicles for longer.
• Manufacturing production grew modestly to moderately in most Districts, led by stronger orders from the data center, machinery, and defense sectors.
• Manufacturers in several Districts said supply chain issues were more common.
• Construction and real estate activity increased slightly overall, with several Districts noting growth in data center building.
• Transportation activity increased modestly amidst ongoing supply chain changes related to higher tariffs and the conflict in the Middle East.
• Overall, activity in other service industries also was up modestly.
• Employment rose on balance, with five Districts showing modest, moderate, or solid gains in employment, and with seven Districts experiencing little to no change.
• Wage growth was modest to moderate in most Districts, though two saw only slight wage increases.

AI Data-Center Construction Is Booming—but Not Much Else Is Spending on new factories, warehouses and other industrial sites is damped by rising costs

(…) The AI data-center spending binge is helping to mask some of the weakness in the traditional categories of commercial and industrial buildings.

Spending on data-center construction in May rose 23% from a year earlier, according to the U.S. Census Bureau. Yet data centers accounted for 8% of the total spending on private, nonresidential construction. (…)

Construction spending on manufacturing buildings dropped 22% year-over-year in May to a seasonally adjusted annual rate of $174 billion. Manufacturing makes up the largest part of private, nonresidential construction, accounting for nearly a quarter of the spending in May, according to the Census Bureau. (…)

Meanwhile, policy changes affected other plans. The Trump administration erased America’s push to make its auto industry mostly electric by the 2030s, leading to a downturn in the construction of ambitious U.S. plants. Softening demand for some types of chips, shortages of technical workers and cost overruns have slowed construction at some semiconductor factories.

As work on these high-cost plants winds down, analysts expected a decline in aggregate spending on manufacturing plants. But analysts say the soaring costs of construction materials, like steel and electrical gear, are further discouraging spending on projects.

Materials costs for nonresidential construction are up more than 55% since early 2020 and even higher for fabricated steel, copper wire and some other individual materials, according to the government’s producer price index.

Thomas Murphy, vice president for Power & Construction Group, an electrical-infrastructure contractor near Rochester, N.Y., said prices for transformers are up about 70% in the past five years. Order backlogs for some electrical equipment extend for more than two years. That is driving up construction costs by lengthening the time it takes to complete jobs. (…)

Analysts say President Trump’s aggressive use of tariffs to make imported goods more expensive—an attempt to entice manufacturers to build more in the U.S.—also raised domestic prices for manufacturing materials, making it harder for manufacturers to justify factory expansions. (…)

In Monday’s Daily Edge, I included some charts highlighting the K-shaped US economy:

 

US Sets 25% Tariff on Some Brazilian Imports Starting July 22

The US will begin charging 25% tariff on imports of certain goods from Brazil following an investigation alleging that the country engaged in unfair trade practices. (…)

The administration proposed an additional 25% duty on imports from Brazil in a June 1 report following an investigation pursued under Section 301 of the Trade Act of 1974. The report accuses Brazil of engaging in practices that discriminate against and burden US commerce, specifically calling out its electronic payments service, known as Pix, which is used by millions of Brazilians daily.

The US report argued that Brazil has “unfairly disadvantaged” American providers of competing electronic payment services by adopting policies that favor Pix, a platform President Luiz Inácio Lula da Silva has repeatedly portrayed as a symbol of the country’s technological sovereignty and financial independence. (…)

The US is Brazil’s second-largest trading partner and one of the few major economies with which it runs a trade deficit. Brazil imported more than $45 billion of American goods in 2025, an 11% increase from a year earlier, while exports fell nearly 7%, with crude oil accounting for 12.5% of shipments.

In a post on X, Secretary of State Marco Rubio accused the Brazilian government of not negotiating in good faith. He said Lula’s “economic policies are bad for Americans and bad for Brazilians. For the past year, Lula has put his own ego ahead of making a deal for the welfare of the Brazilian people, and these tariffs are the price for that.” (…)

Flávio Bolsonaro, a senator and a son of the former president, is Lula’s main challenger in October’s election. The government, in its statement on Wednesday, said the Bolsonaro’s family had worked with the US government to enable the tariffs. (…)

US, Canada Contradict Each Other on Financial Terms of Detroit Bridge Deal

The US and Canada are presenting different accounts of a profit-sharing deal President Donald Trump agreed to that permits a new bridge connecting Michigan and Ontario to open later this month.

The White House and the government of Prime Minister Mark Carney last Friday announced an agreement to open the Gordie Howe International Bridge after the US delayed it. Canada will fund a regional development agency by sharing a portion of net toll profits from bridge traffic, which Commerce Secretary Howard Lutnick had been seeking.

Since then, however, both governments have offered only limited details that have painted different pictures of the terms.

Carney told a Canadian television network that debt costs would be factored into the calculation of the bridge’s profit. That’s important because Canada paid the entire C$6.4 billion ($4.6 billion) construction cost. Annual interest on that amount would be hundreds of millions of Canadian dollars. Deducting interest would reduce the profit and, therefore, the US share.

“We are sharing after Canada is paid back. So we get the revenues, then the servicing of the cost of the bridge and paying the debt of the bridge. And then what’s left over, there’s a split of that for 15 years,” the prime minister told CTV News on July 12.

A US official, however, contradicted Carney’s account and said that neither loan interest nor depreciation would be included in the calculation. That view suggests fewer expenses to offset the revenue and, thus, a larger share for the US. The official spoke on condition they not be identified discussing private matters. (…)

Another memorandum of misunderstanding. A pattern? USA-Iran, USA-Canada, US Pentagon-Anthropic, US Pentagon-OpenAi, USA-Ukraine security arrangements.

• Xi Scores a Coveted Soft-Power Win Over Trump Pew survey shows people view China more positively than the US for the first time in almost 20 years.

Back in 2021, President Xi Jinping called on his underlings to create a “trustworthy, lovable and respectable” image for China.

This week, Xi received evidence that the mission is being accomplished, though he should give President Donald Trump an assist.

A survey by the Pew Research Center found that more people around the world view China more positively than the US for the first time in almost 20 years.

Even the US’s closest neighbors, Canada and Mexico, saw China in a better light. Younger people especially had a better vibe about the country. (…)

WANNA BET?

Americans are set to lose nearly $250B gambling this year, up more than 60% since 2019, and that’s before counting unofficial betting via prediction markets or crypto.

Joseph Politano via Barry Ritholtz

That’s an average of $925 per adult Americans before counting unofficial betting via prediction markets or crypto.

From a 2025 TransUnion survey:

• 26% of American adults participate in some form of online or land-based betting. That would be about 70M people. So the $925 average loss per adult American becomes $3,500 per betting American.
• GenZ (31%) and Millenials (35%) were the most active bettors while Boomers (17%) were the least.
• Roughly 20% bet more than $500 per month.
• “Of online bettors who deposit over $500 per month, 54% had a combination of good or excellent credit with high or middle income.” The other half …
• “Among those who deposit at least $500 per month for online betting activities, 40% said they were unlikely to meet all their financial obligations in full; 49% said they had been 90 days or more past due on a loan payment in the past year; and 44% said they had been contacted by a collection agency over the same period. These numbers were similar among the most active land-based bettors.”

“God rewards gamblers and fools. The crucial thing, when you win, is knowing which you were.” (Mark Twain)

Stanford Study Says Polymarket Crypto Bets Are Being Manipulated

Researchers at Stanford University identified signs that traders may be manipulating one of Polymarket’s most popular Bitcoin betting markets by briefly influencing the cryptocurrency’s price used to decide the wagers.

The working paper, co-authored with a researcher at Singapore Management University, examined about two months of five-minute Bitcoin bets on Polymarket. It found repeated bursts of one-sided trading on the Binance exchange that temporarily moved Bitcoin’s price in the final seconds before bets closed, benefiting traders positioned in the same direction.

The activity was heaviest at times when small, temporary moves in Bitcoin’s price could determine whether a bet paid out. The researchers described the pattern as a “transitory push to manipulate the spot price.”

Prediction markets have traditio nally been used to forecast elections and sporting events, where traders cannot easily influence the outcome. The researchers argue bets tied to financial assets are vulnerable to manipulation because participants can trade the very asset that determines whether they win or lose.

“These contracts have a structural vulnerability,” Singapore Management University assistant professor Shihao Yu, one of the paper’s authors, wrote in a LinkedIn post about the research. “They settle on a price that traders can move by trading the underlying asset itself.”

The findings come as exchanges expand prediction markets tied to financial assets. Cboe has begun rolling out products tied to stock indexes, while Nasdaq has sought approval for similar contracts, potentially extending the questions raised by the paper beyond crypto and Polymarket.

While the researchers document unusual Bitcoin trading around when Polymarket’s short-term Bitcoin bets settled, the paper does not prove that the trading necessarily came from Polymarket users who stood to gain from momentary moves in Bitcoin’s price. The research also stops short of proving traders’ intent but still presents evidence consistent with manipulation, according to Elton Shehdula, head of research at crypto analytics firm Allium.

“The pattern looks real to me,” Shehdula said. “The harder question is whether the traders pushing the price on Binance and the Polymarket wallets collecting the winnings are connected.”

Wanna bet on that?

  US troops to get testosterone treatment to make them strong Announcement from defence secretary Pete Hegseth comes amid focus on low sperm count and virility on American right

The Pentagon will offer testosterone treatment for US soldiers, in a programme announced by defence secretary Pete Hegseth to create a “High-T” fighting force.

The initiative is the latest step in Hegseth’s campaign to reshape the military around a “warrior ethos”, rolling back diversity initiatives while emphasising traditional masculinity, combat fitness and physical appearance.

Hegseth said the defence department would begin “a new screening programme for testosterone deficiency for our service members, ensuring you have the right testosterone levels to operate at your absolute best”.

Adequate testosterone levels would make soldiers “strong, resilient and capable”, keeping them on the “leading edge of lethality”.

Troops 30 years old and over would have their testosterone levels tested annually, while younger soldiers could opt in to the test, Hegseth said. (…)

“Have you seen all these studies that basically connect testosterone levels in young men with conservative politics?” Vance said on Rogan’s podcast days before the 2024 election. (…)

US CPI Falls for the First Time Since 2020, Core Gauge Flat

The consumer price index fell 0.4% from May, dragged down by the biggest decline in gasoline prices since 2022, according to Bureau of Labor Statistics data out Tuesday. Excluding food and energy, the index was flat from the prior month. (…)

The headline index was up 3.5% from a year earlier and the core measure was 2.6% higher. (…)

A services gauge that Fed officials watch closely, which strips out housing and energy costs, fell by 0.2%, matching the biggest decline since the onset of the pandemic. It was dragged down by outsize declines in motor vehicle insurance premiums, which also fell by the most since 2020, and communication services.

The core CPI was also restrained by monthly declines in goods prices, including those for apparel and used cars.

Gasoline prices fell nearly 10%, rents rose modestly and grocery prices advanced for a third month on increases in beef, eggs and dairy. Hotel rates, meanwhile, declined by the most in more than a year after four straight months of gains. Restaurant prices rose only modestly.

Computer software and accessories prices jumped 2.3% on the month and a record 17.4% from a year earlier. (…)

Thanks to the drop in gasoline prices, Americans saw real average hourly earnings rise 0.1% from a year earlier after declines in the prior two months. (…)

On a YoY basis, headline CPI is up 3.5% in June. Core CPI: +2.4%. CPI-Essentials: +4.4%. Supercore: +3.2% (not charted).

But the war is back on…

Trump held Situation Room meeting on massive new Iran strikes

President Trump held a Situation Room meeting Tuesday to discuss a massive offensive in Iran that will be wider in scope than the current strikes around the Strait of Hormuz, three sources with knowledge said. (…)

The sources said the meeting focused on new plans for devastating strikes on strategic targets in Iran, in addition to the strikes against Iranian targets in the Strait of Hormuz.

In an interview with Fox News before the Situation Room meeting, Trump said the strikes would expand in the coming days.

• The U.S. military is going to hit Iran “hard” over the next three days, he said, before stressing that strikes could significantly escalate after that.

• “Next week, it gets really bad for them because next week comes the power plants,” Trump said. “Next week comes the bridges. We’re gonna knock out all their power plants. We’re gonna knock out all their bridges unless they get to the table and negotiate.” (…)

Meanwhile, the Atlanta Fed GDP Now is down to +1.3% (is there a demand problem in June’s CPI numbers?) …

… in spite of surprisingly good eco data as Ed Yardeni illustrates:

China’s Economy Stumbles With Growth Unexpectedly Below Target

Gross domestic product grew 4.3% from a year ago, according to data released by the National Bureau of Statistics on Wednesday, below the bottom of this year’s official target range of 4.5% to 5%. (…)

Taken together, growth in the first half of the year was 4.7%. GDP expanded 0.9% on a quarter-on-quarter basis, the slowest in more than two years. (…)

While first-half growth is comfortably within Beijing’s targeted corridor, Premier Li Qiang didn’t rule out the possibility of rolling out extra stimulus, calling for “preparing and studying additional policies” at a meeting earlier this week.

The latest data also showed fixed-asset investment was down 5.7% in the first half from a year ago, lower than estimated and worsening from the 4.1% decline recorded in the first five months.

In a surprise to most economists who predicted a slight fall in retail sales, they grew 1% after a 0.6% drop in May. Industrial production beat forecasts and rose 5.3%. The surveyed urban jobless rate eased to 5% from 5.1% in May.

“The slowdown in second-quarter growth is mainly due to short-term and external factors,” said Mao Shengyong, deputy head of NBS. While “temporary factors” affected some sectors like coal mining, he said “other industries were normal, and the economy’s fundamentals, which are stable and upgrading in structure, are unchanged.” (…)

Retail sales of goods excluding cars rose 3% on year in June, while purchases of autos plummeted more than 16%. Declines in sales of goods such as home appliances narrowed during the annual “618” mid-year online shopping festival, according to some onshore economists. (…)

Almost all types of capital spending shrank in June. Property investment fell 18% in the first half from a year ago, its steepest decline in data going back to 1992, even though the drop in home prices eased in June. (…)

Li, the government adviser, estimates about 24 million people have left the workforce because they couldn’t find a job for a long time, with over half of those dropping out aged 16 to 24. Taking into account people who’ve involuntarily exited the labor market, a broader unemployment rate would be at 10.2%, he said in a recent speech.

The employment and investment issues “must be paid serious attention,” Li said in the Saturday speech during an online event. “If we don’t address them, we’ll have trouble achieving various goals with the economy.”

• Two Million Workers Are Locked Out of an Improving Job Market The share of job seekers out of work for six months or longer is hovering near highest level in five years

By most key metrics, the U.S. labor market is in fine shape: the economy has added jobs for four straight months, much improved from late last year, and the unemployment rate has drifted down to 4.2%.

Yet nearly two million Americans have been locked out of the job market for at least half a year.

The long-term unemployed—people without work for 27 weeks or more, the longest period the Labor Department reports in each monthly jobs report—accounted for 27.3% of all unemployed people in June, up 4 percentage points from a year earlier. (…)

This can be perilous, since the six-month mark is when many job seekers lose severance or unemployment benefits. (…)

Labor Department data show long-term unemployment hitting people most heavily in their prime working years, between 25 and 54. Within this group, workers from their mid-20s to mid-30s represent both the highest number of overall jobless people and, at 27%, the highest portion of the long-term unemployed. (…)

The jobless drought appears to be hitting white-collar workers especially hard. For example, more than a third of people out of work in the professional-services sector have been unemployed for six months or more, federal data show. Other fields with lots of long-term unemployed people include government workers—a group hit by federal cuts—finance and information technology.

“If you become unemployed, hires are very low right now, so it’s hard to get a job especially in certain [white-collar] sectors where we haven’t seen a lot of growth,” said Laura Ullrich, director of economic research at jobs site Indeed. (…)

The fallout from long unemployment stretches can include running down savings and temporarily halting the buildup of retirement accounts. (…)

IBM Loses $69 Billion of Market Value in One Day in Latest AI-Fueled Selloff Shares of the corporate stalwart plunged 25% as AI purchases crowd out traditional tech spending in many companies’ budgets

Shares fell more than 25% Tuesday, the largest one-day drop on record after the company issued a rare profit warning, citing a shift in customer spending from software to artificial-intelligence hardware and memory chips. IBM is scheduled to release its official second-quarter figures next week and could offer a preview of the toll corporate America’s AI bills might take on software spending.

The selloff in software stocks like Adobe and Salesforce earlier this year was triggered by fears that AI companies like Anthropic would enable people to easily make cheaper copies of the software-as-a-service products sold by traditional firms. However, the selloff in IBM’s shares, which wiped out $69 billion in market capitalization, is being driven by a different phenomenon: worries that new AI purchases will crowd out more traditional tech spending in company budgets.

The rapid rise of AI has made chips more expensive, which in turn has driven up prices for everything from laptops and gaming consoles to AI data-center servers. That run-up in costs has squeezed tech budgets at big institutions including banks—a core customer base for IBM—that buy an enormous amount of computing power from cloud companies to run in-house AI tools.

IBM Chief Executive Arvind Krishna said that in June, clients shifted their quarterly capital expenditures toward servers, storage and memory to secure supply-constrained infrastructure ahead of anticipated price increases.

“While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.” (…)

IBM’s mainframe computing and consulting businesses compete directly with AI models like Claude Code, and its infrastructure business faces threats from the rising deployment of massive AI data-center clusters, which offer enterprise clients access to the computing resources they need, often at more competitive prices. (…)

Chris Versace, chief investment officer at Tematica Research, said that IBM’s comments, paired with recent statements made by some of its major customers, including J.P. Morgan and Goldman Sachs, represented “confirmation that AI adoption and usage are rising and companies are prioritizing it to drive efficiencies and productivity.” (…)