Tariff Bite Incoming
The stakes are high. Tariffs are the highest they’ve been in 100 years, President Trump is clamoring for rate cuts, and Federal Reserve officials are in wait-and-see mode until they get more clarity. Fed officials have said that they expect tariff impacts to become increasingly apparent as summer moves along, and investors will be scrutinizing every data point anxiously. Which brings us to this week’s major inflation data. The Consumer Price Index (CPI) increased by a seasonally adjusted 0.3% month-over-month, a step up from the more benign 0.1% rise recorded in May. This monthly acceleration pushed the year-over-year inflation rate to 2.7%, up from the prior month's 2.4%. While core CPI, which excludes the volatile food and energy components, came in below consensus estimates at 0.2% month-over-month, things were less rosy under the hood. For example, the core goods component rose 0.2% in June. That might not sound like a big deal, but it’s noteworthy because it occurred despite new and used cars falling 0.3% and 0.7%, respectively. Those items represent 35% of the entire core goods basket, which suggests that inflation in core goods minus cars was hot.Core Goods CPI Month-over-Month
Spoiler alert: That’s exactly what it was, as apparel, recreation, and household furnishings inflation all accelerated meaningfully. Overall, core goods (excluding cars) inflation was nearly 0.6% month-over-month, the highest since November 2021. And it’s not like the distribution of these price increases were random — they align pretty closely with recent tariffs. For the last few months, the tariff bark had been louder than its bite, but that might be changing now.
Looking Upstream for Clues
Consumer inflation isn’t the only data we got, however, as the Producer Price Index (PPI) dropped a day after CPI. In simple terms, the PPI measures the prices companies receive for their goods and services at the wholesale level, while the CPI measures the prices consumers ultimately pay at the retail level. Importantly, PPI also tends to reflect the input costs businesses face further up the supply chain. Headline PPI, often called the Final Demand figure, was flat month-over-month versus expectations for a 0.2% increase. On its face that is a downside surprise, but the prior month was actually revised up by 0.2 percentage points, so net-net it’s a bit of a wash. An investor’s first instinct might be to look at PPI Final Demand being lower than CPI and assume that this would help corporate profit margins (and possibly stocks as a result), but the historical relationship isn’t straightforward. The back story: The Final Demand figure wasn’t always what was interpreted as the headline PPI figure. In fact, we only have data for it going back to 2009. Up until recently, the headline figure was the PPI Finished Goods series (which actually dates back to the 19th century!). The reasons for the switch are convoluted, but the idea is Final Demand more thoroughly measures all aspects of wholesale inflation. A larger sample size is advantageous when analyzing relationships, however, so let’s look at the PPI Finished Goods series when looking at CPI and corporate profit margins. In June 2025, the PPI measure was up 0.4% month-over-month and 1.9% year-over-year. While it l might seem that a lower PPI should be good for margins, history actually tells us the exact opposite.PPI-CPI Tracks Forward Earnings Growth
A possible explanation is that periods of higher wholesale inflation reflect strong corporate pricing power that will be passed through to consumers, boosting the bottom line. However, this time may be different, given that the nature of the cost shock isn't just shifting supply and demand but the introduction of a new tax. So, if PPI moves higher relative to CPI in coming months, that might not suggest profit expansion like it otherwise would have.
Testing the Rotation
After a first half of 2025 where international equities dramatically outperformed their U.S. counterparts, July has ushered in a more complex and volatile environment. That’s testing the durability of the nascent idea that international markets may outperform after a decade plus of U.S. dominance. The S&P 500 is +0.6% month-to-date, mostly due to mega-cap tech stocks — the Magnificent Seven is +1.8%, while the equal-weight S&P 500 is flat. Meanwhile, the powerful outperformance of international stocks that defined the first half of the year has also stalled in July. Through July 16, the MSCI ACWI ex-US Index was down 0.3% after returning 18.1% in H1, a notable reversal of the H1 trend.2025 Total Returns
This pause has been driven by a confluence of factors, including a potential short-term bounce in the U.S. dollar or some profit taking after the strong start to the year.
Of course, fundamental differences between the U.S. and international markets remain. The big one is the valuation disparity between domestic and international stocks, as the S&P 500 trades at a forward P/E ratio of 22.1x while the MSCI ACWI ex-US trades at a 14.4x P/E. For U.S. investors, investing in international stocks also introduces a currency component. That boosted international stock returns by 10-15 percentage points in H1, as the dollar had its worst first half of a year since 1973, but could turn into a drag if the dollar rebounds.
The choppy start to the second half serves as a crucial reminder that major market shifts are rarely linear. For investors, this reinforces the importance of a truly diversified portfolio, not just geographically, but also in terms of style and sector. You never really know how things are going to go, but you can be prepared.
Want more insights from SoFi’s Investment Strategy team? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.
SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
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