Well, what do you know? Inflation unexpectedly low!

Rose 0.2% and 2.7% annualized. How is this possible with all that tariff inflation?

The consumer price index rose at a 2.7% annualized rate last month, a delayed report from the Bureau of Labor Statistics showed. Economists polled by Dow Jones expected the CPI to have risen 3.1%.

That's actually a pretty significant difference. 2.7% versus 3.1% or the difference between inflation continuing to cool down versus inflation starting to rise again. Now certainly people will point to the idea that we want inflation at 2% or lower, but we have not seen those sorts of numbers for years, and at this point we need to look more at baby steps than a large change in the inflation dynamic.

Now many in the media are suggesting this is not as good as it seems. There is still seems to be an underlying belief that any day now, the tariffs will start to massively affect inflation, even has they have no so far. There are plenty of excuses for why the tariffs are not raising prices so far. First it was that companies loaded up on inventory at old prices. Then it was the concept that there is a lag between companies paying more and passing along to consumers. Now it is the fact that nobody wants to raise prices during the holidays (seems counterintuitive) and that everyone is waiting for the first of the year, which is now when experts suggest price increases happen. So far the inflation cheerleaders have been no more accurate than the average everyday the world is ending prophet.

The fact of the matter is that these tariffs are no different than previous tariffs and that history shows that the large bulk of the tariff taxes are eaten by the exporter and importer and that no more than 20% is passed to the consumer. Given how few things are actually tariffed and given how many retailers are still providing sales and discounts on everything, it is not surprising that the tariffs are not raising the prices as much as the naysayers seem to want or believe. The math doesn't work for a large inflationary reaction.

Lastly, the markets have responded favorably to the news and we can hope that our year long pattern of growth can close out 2025 strong and start 2026 even stronger.