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Inflation? What Inflation? U.S. Prices Stay Muted (For Now…)
Despite widespread tariff fears, both consumer and producer inflation remain muted — signaling that companies are absorbing higher costs rather than passing them to consumers.
But that restraint may not last, as thinning inventories and rising input costs could soon force businesses to raise prices or slash expenses to protect margins.
Why this matters: So far, the feared inflation surge from tariffs hasn’t materialized - prices have come in below expectations. That’s led markets to reprice expectations for Fed rate cuts and reassess consumer resilience. Many companies have been reluctant to pass on higher costs, worried that consumers won’t tolerate price hikes. But while that’s helped keep inflation in check, it may only be buying time before squeezed margins, depleting inventories, and further tariffs pressure corporate bottom lines.
Now the Deep Dive: For months, headlines warned that tariffs would unleash a wave of inflation. But four months in, the data tells a different story.
In fact - core inflation has come in below expectations for five straight months. Meanwhile, producer prices remain muted – showing that many firms are still absorbing higher costs instead of passing them through to consumers.
So, why would companies hesitate to just raise prices? Well, because of a thing called “demand destruction”.
See, when prices rise too high, people start buying less. They cut back, switch to alternatives, or go without.
Gas is the classic example - when prices spike, people drive less, carpool, or consider buying an EV.
It’s this fact that makes the math clear. For instance, if you make $25,000 a year and prices rise 10%, trade-offs become un-avoidable – that is, unless you borrow.
To put this into perspective - According to the latest Bankrate survey:
23% of credit card holders say they’ll never get out of debt
60% have carried a balance for over a year
18% worry they won’t be able to make minimum payments in the next 6 months
27% are less confident about escaping debt than they were a year ago
45% cite emergencies as the main driver of their credit card debt
In short, consumers can’t absorb much more.
If prices go up 10%, but wallets don’t — something has to give. That’s why many companies are keeping prices steady, even if it means sacrificing profit margins.
And let’s be clear - inflation hasn’t gone away. Prices are still rising - just slower than expected. And that’s bought some time.
But beware - this may prove temporary as “destocking” winds down and companies burn through their cheaper, pre-tariff inventory.
Eventually, once they need to re-up imports at higher cost, firms may have to:
Raise prices and risk losing customers, or
Cut jobs, freeze hiring, or delay investments to preserve margins.
Either path carries risk.
So, while inflation may be cooling today - the story isn’t fully over.
Figure 1: Bloomberg, July 2025
When Momentum Becomes the Model? Ethereum’s Speculative Loop Unfolds
A growing number of once-anemic small-cap companies is driving Ethereum’s rally by issuing stock to buy ETH - creating a self-reinforcing momentum loop.
While this treasury strategy is boosting prices and attention now, it may be setting the stage for a speculative unwind driven more by hype than fundamentals.
Why it matters: Many of these struggling or thinly traded companies are using Ethereum as a speculative lifeline - issuing new shares to buy ETH and rebranding as crypto treasury plays. While this has boosted both ETH and their own stock prices, it’s also raising concerns of a bubble, especially as price appreciation becomes the business model itself.
Now the Deep Dive: I believe we’re seeing the early signs of a speculative bubble forming in Ethereum - not because of fundamental use cases, but because of this sudden wave of balance-sheet-driven buying by small-cap public firms.
And while bubbles can be exciting for early movers, they often leave latecomers holding the bag.
Now you may be wondering, “What’s an Ethereum Treasury Company?”
Put simply, instead of just holding dollars, these companies are parking Ethereum on their balance sheets - like holding gold or stock in another company - thus betting on its future price and using it to attract investor attention.
Here’s how it works:
Raise capital by selling new shares (diluting shareholders) or issuing debt.
Use that cash to buy large amounts of ETH.
Promote the ETH holdings as part of their asset base and company valuation.
Meanwhile, this wave of buying has pushed Ethereum’s price higher — creating a dangerous loop:
The more ETH they buy, the more ETH rises — which drives up their stock price, which lets them dilute further to buy even more ETH.
But as we all know, this momentum loop isn’t sustainable (it never is). For example, remember the previous cycles in SPACs, meme stocks, and even gold miner ETFs? While there were good sides to those businesses – they quickly got overdone.
This is why I believe there are two major risks standing out:
Weak underlying businesses – Many of these companies have weak underlying businesses, with minimal real revenue — some were once shell companies or struggling microcaps. Their valuations are now tethered to hot money chasing ETH - not operational performance. Thus, their market caps are rising far beyond what their fundamentals justify - introducing clear signs of bubble-like behavior.
“Copycat” saturation – as more firms mimic this strategy, returns will diminish, and investor enthusiasm could evaporate just as quickly as it surged.
In short, it’s less about innovation and more about imitation.
Now, it may not be today, but when the music stops, someone’s left without a chair.
Investors would be wise to ask, “what’s real — and what’s just momentum dressed up as strategy?”
As always – time will tell.
Figure 2: Dunham, July 2025
Health Care Took Over the U.S. Job Market - Now It’s Fueling Inflation Risks Too
Health care now accounts for nearly one-third of all U.S. job growth - making it the top employer in 38 states and surpassing manufacturing in once-industrial cities.
This boom is driving wages and employment - but also stoking inflation, as labor-intensive medical jobs face limited productivity gains.
Why this matters: Health care hasn’t just grown - it’s taken over the U.S. job market. Over the past year, it has driven nearly a third of all new jobs, while retail and manufacturing have declined. In 38 states, health care is now the largest employer. Cities that once ran on steel and factories - places like Cleveland and Pittsburgh - now run on hospitals and clinics. This is a boom for the industry and for medical professionals. But it also signals how dependent the economy has become on health care - a trend driven by an aging population and rising chronic health issues.
Now the Deep Dive: I found this New York Times piece interesting as it shows the complete change in the U.S. job market over the last 30+ years - as manufacturing has diminished and healthcare has soared.
Below are the points I found most striking. . .
Health care now makes up 13% of all U.S. jobs - up from 9% in 2000, now making it the largest employer in the country.
In the past year alone, health care has accounted for nearly one-third of all job growth, while retail and manufacturing have stayed flat.
In 38 states, health care is now the top employer- including in former industrial centers like Cleveland and Pittsburgh.
Americans now spend more on health care than on groceries or housing - driven by an aging population and rising chronic disease.
Wages in health care —especially for nurses and physician assistants -have outpaced most other sectors, becoming a key engine of middle-skill job growth.
While all of this growth is notable and warranted, it also reminds me of a concept I first came across in economics class.
I’m talking about Baumol’s Cost Disease — the idea that in labor-heavy sectors (like health care and education), wages keep rising even when productivity doesn’t.
Here’s how that plays out:
Hospitals and clinics raise wages to compete for talent in a growing sector or match general inflation - but there’s only so much a nurse, doctor, or technician can do in a day.
So costs go up, but output doesn’t = efficiency doesn’t improve even as the payrolls grows.
And because health care is now a massive part of the economy, those rising wages and costs ripple outward - inflating insurance premiums, straining public budgets, and lifting consumer prices across the board.
Note that I’ll be doing a full Morning Pour on Baumol’s Cost Disease in the coming weeks - digging deeper into it and how it’s a symptom of an economy plagued by diminishing returns - dating all the way back to the 1970s.
But for now, here’s a taste of what we’re up against. . .
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