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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.

What you need to know: Producer prices were flat in June - rising just 2.3% year-over-year - which is the smallest annual gain since September and below economist expectations. Meanwhile, consumer inflation via the core inflation measure (excludes oil and food) also came in softer than forecast for a fifth straight month¹. Still, signs are emerging that companies are starting to pass more tariff-related costs onto consumers.

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.

• I wrote to you last April that – historically speaking - tariffs and trade wars tend to be deflationary — not inflationary. That’s because they tend to disrupt trade volumes, distort currencies, curb demand, and lead to more supply. 

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.

But with credit card balances near record highs and carried balances plagued by high APRs, most households have little room left².

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.

What you need to know: A growing wave of publicly traded companies are now buying Ethereum (ETH) for their balance sheets, raising capital by issuing stock and acquiring ETH as a core asset. Some now hold hundreds of millions of dollars’ worth, positioning themselves as “Ethereum treasury companies.” In the past month alone, they’ve accumulated over 545,000 ETH, helping drive prices higher — and fueling fresh speculation³.

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:

1. Raise capital by selling new shares (diluting shareholders) or issuing debt.
   
   
2. Use that cash to buy large amounts of ETH.
   
   
3. Promote the ETH holdings as part of their asset base and company valuation.

This is the same playbook Michael Saylor used with Bitcoin at MicroStrategy years ago⁴ — but now it’s spreading to smaller, less-established companies using Ethereum.

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:

1. 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.
   
   
2. “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.

What you need to know: For years, the American job market has been undergoing a quiet transformation. Manufacturing jobs have steadily disappeared - and health care has not only stepped in but surged ahead⁵.

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:

1. 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.
   
   
2. So costs go up, but output doesn’t = efficiency doesn’t improve even as the payrolls grows.
   
   
3. 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. . .

• Even with all this growth in health care, the U.S. spends more per capita on health care than any country in the world⁶ - yet ranks poorly in life expectancy, infant mortality, and chronic disease outcomes.
  
  
• Meanwhile, roughly 25–30% of all U.S. health care spending goes to administration and billing⁷, not actual care - from pre-authorizations and insurance paperwork to bloated hospital bureaucracy (aka “bloat”).

So yes - health care may be fueling job growth. But it’s also becoming one of the economy’s biggest inflation spigots.

And of course, there are other factors at play. And maybe AI will eventually help improve productivity in this sector.

But this is a structural trend worth watching.

 Figure 3: New York Times, July 2025

Anyway, who knows what will happen?

This is just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things.

Enjoy the rest of your weekend.

Sources:

1. US Inflation Broadly Cools, Likely Sealing Deal for Fed Rate Cut - Bloomberg
2. 1 in 4 credit card debtors believes they will never be free of debt | LiveNOW from FOX
3. Ethereum Treasuries Boom as Companies Look Beyond Bitcoin
4. Michael Saylor's $40bn bitcoin bet | FT Film
5. How Health Care Remade the U.S. Economy - The New York Times
6. US doctors make good salaries, but they still hate the health care system. Here’s why. | Vox
7. Almost 25% of Healthcare Spending is Considered Wasteful. Here’s Why.

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