Weekly Market Commentary July 21, 2025

WEEK IN REVIEW

This past week offered a wealth of economic data, with inflation and consumer strength emerging as the dominant themes. Markets responded positively to signs of easing inflationary pressures and continued resilience in consumer demand, two key factors shaping the outlook for monetary policy and economic growth.

Inflation: Cooling but Still in Focus

Tuesday’s Consumer Price Index (CPI) report showed core CPI rose 0.2% month-over-month, slightly below expectations and marking a fifth straight month of softer-than-expected readings. While headline CPI came in hotter, its volatility, especially from energy, makes core CPI the more reliable gauge

On Wednesday, Producer Price Index (PPI) data reinforced the disinflation trend, with both core and headline PPI flat and below forecasts, suggesting waning cost pressures for businesses and the potential for improved profit margins. Rounding out the week, the University of Michigan’s inflation expectations for both 1-year and 5-year horizons declined, continuing the theme of lower-than-expected inflation

Consumer Demand: Still Strong and Broad-based

Despite inflation concerns, the U.S. consumer remains resilient. Thursday’s retail sales report surprised to the upside, with headline sales rising 0.6% and core retail sales up 0.5%, a sharp rebound from last month’s decline.

Strength also showed in housing, where building permits and housing starts exceeded forecasts, suggesting homebuilders are more optimistic about future demand. Finally, consumer sentiment improved, with the University of Michigan’s survey showing gains in both expectations and overall confidence.

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