MBS Road Signs 8-18-2025

Week of August 11, 2025 in Review

Consumer and wholesale inflation rose, retail sales showed strength, and unemployment claims remain little changed. Read on for more key insights.

Consumer Inflation Rises in July, But Tariff Impact Limited
Wholesale Inflation Rises Significantly Higher Than Expected
Retail Sales Show Consumers Are Still Spending
Unemployment Claims Show Employers Continue to Retain Their Workers
What to Look for This Week
Technical Picture

Consumer Inflation Rises in July, But Tariff Impact Limited

The Consumer Price Index (CPI) rose 0.2% in July. Compared to last year, prices were up 2.7%, unchanged from June’s report. The 1.1% decline in energy prices and 2.2% decline in gasoline prices helped the headline reading remain stable.

Core inflation – which leaves out food and energy – rose 0.3% in July, in line with estimates. On a yearly basis, core prices are up 3.1%, an increase from 2.9% in June, and 0.1% hotter than estimates.

While tariffs didn’t significantly impact this report, the shelter component accounted for more than half of core inflation. Some other areas that caused inflation to rise were airline fares, used cars and trucks, and medical care services.

What’s the bottom line? While tariffs were expected to push prices higher, their impact was smaller than feared and did not cause a larger increase in the overall consumer inflation reading. Most costs remain tame aside from the aforementioned items.

Wholesale Inflation Rises Significantly Higher Than Expected

The Producer Price Index (PPI) rose by 0.9% in July at the headline and core readings, well above the 0.2% gain expected on each. From a year ago, headline inflation rose 3.3% from 2.4% in the previous report, while core inflation rose 3.7% from 2.6% in the previous report.

What’s the bottom line? It certainly appears that tariffs are finally showing up in wholesale inflation data. However, it’s important to blend July’s CPI and PPI data and consider that a lot of the tariff costs are being absorbed along the supply chain.

These PPI numbers matter as they influence the Fed’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) index. The components that are shared between these reports were all fairly tame in July.

Retail Sales Show Consumers Are Still Spending

Retail sales increased by 0.5% in July, which was 0.1% lower than anticipated. Helping this figure was a 0.3% positive revision to June. The "control group" – which excludes autos, gasoline, building materials, and food services – rose by 0.5%, which was 0.1% hotter than expected. This measure is especially significant because it directly contributes to GDP calculations.

What’s the bottom line? July retail sales show that the consumer continues to spend in the face of tariffs, although the impact of tariffs on the consumer is hard to quantify at this stage.

Unemployment Claims Show Employers Continue to Retain Their Workers

Initial claims, which measure those receiving unemployment benefits for the first time, dropped by 3,000 to 224,000. Continuing claims, which measure those continuing to receive unemployment benefits, fell 15,000 to 1,953,000. This report marks the 12th straight week that continuing claims have remained above 1,900,000.

What’s the bottom line? The story remains the same: employers are holding onto their existing workers the best they can, and once someone is let go, it’s taking longer to find a job as there is less hiring being done, as evidenced in the last three BLS job reports.

What to Look for This Week

Key housing data is on the way, with builder confidence out Monday, construction figures on Tuesday, and Existing Home Sales on Thursday. Additionally, the Fed’s latest meeting minutes will be released on Wednesday, and Jobless Claims data comes out Thursday.

Technical Picture

Mortgage bonds continued to trade sideways last week, ending Friday sitting on support at 101.76 – a level that’s been tested and has held for the last 10 days. The 10-year Treasury tested resistance at 4.292% throughout the week and finally broke above it on Friday, closing the week at 4.326%. Overhead there is tough resistance, including three moving averages, around 4.35%.

MBS Road Signs 8-18-2025