More Data Is Yelling To Us That Inflation Is Falling

To investors,

We got more data this morning that proves tariffs are not inflationary. The Producer Price Index (PPI) is a collection of different indexes that measure the average change over different timelines for selling prices received by domestic producers for the goods and services they produce. The PPI metrics came in lower on every single measurement this morning than economists’ expectations.

This important because PPI is seen as a leading indicator of CPI. And if PPI is falling, the market starts to price in lower inflation in the future. And the data is screaming at us that inflation is going to be lower than economists previously believed.

PPI month-over-month was 0%, PPI Core month-over-month was also 0%. Zero. Zilch. Nothing. Literally flat. Call it a narrative violation.

PPI and PPI Core came in under expectations for year-over-year numbers too. The reason? Tariffs are deflationary, not inflationary. That isn’t debatable anymore.

The tariffs have been in place for 6 months. We have a blanket 10% tariff on all US imports, yet inflation has not exploded higher as everyone predicted.

The shelves were never empty. The recession has been cancelled. And the doomsday predictors look insane in hindsight. But here is the more interesting conversation — what does a lower than expected PPI metric tell us about the future?

According to our handy economic analyst Chat-GPT, here are things to consider if PPI comes in cold:

1. Lower Producer Costs

* Businesses are facing less inflationary pressure on raw materials, components, or production costs.

* This could lead to lower prices for consumers down the line.

2. Disinflationary Signal

* It suggests that inflation might be slowing in the economy.

* This is generally seen as a positive signal for the Fed if they are trying to cool inflation.

3. Impact on Interest Rates

* Markets may interpret it as less need for interest rate hikes (or a higher likelihood of rate cuts), which can boost stock prices and lower bond yields.

4. Corporate Margins

* If consumer prices stay the same while input costs drop, profit margins for companies can improve.

5. Economic Growth Signal

* It might also reflect slowing demand in the economy, especially if falling prices are due to weak purchasing activity rather than increased supply.

The most interesting part to me is about the Federal Reserve cutting interest rates. Lower PPI gives another data point to the Fed to get a cheaper cost of capital into the market. Will they listen? Probably not. But just because they won’t listen, doesn’t make them right.

The US economy is in much better shape than people want you to believe. Inflation is less of a problem than most people thought. And we are about to do our best impression of a growth economy to get ourselves out of this dire financial position we are in.

The unfortunate part is the growth is going to be stimulated by money printing and currency debasement. Which means stocks, bitcoin and gold are going MUCH higher through the second half of the year. Buckle up. The upwards volatility is just beginning.

Hope you have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

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