The November 2025 ISM® Manufacturing PMI® Report delivered a Manufacturing PMI® of 48.2%. This level below 50 signifies contraction in manufacturing. The Manufacturing PMI® is in its 9th straight month in contraction and 35th month of contraction in the past 37 months. January and February of this year were the only two months of growth over this timespan. Fortunately, manufacturing is not weak enough to drag the entire economy into contraction. According to ISM, a Manufacturing PMI® above 42.3% “over a period of time” is consistent with an expanding economy. In fact, “the past relationship between the Manufacturing PMI^® and the overall economy indicates that the November reading corresponds to a 1.7% increase in real gross domestic product (GDP) on an annualized basis”.

Unfortunately, the ongoing contraction in manufacturing has not cooled off inflationary pressures. Currently, higher steel and aluminum prices have cascaded through the manufacturing value chain. Tariffs on imported goods have created additional cost burdens. The ISM^® Prices Index increased month-over-month from 58.0% to 58.5%. The Prices Index is also up 6 percentage points year-over-year and has increased for 14 straight months. 

Perhaps tellingly, Computer & Electronic Products was one of four industries that grew in November. I assume the rush to implement AI across enterprises and government is providing this push. For example, Dell Technologies (DELL) reported exceptionally strong demand for AI servers. From the transcript of the recent Q3 2026 earnings call: “AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year-to-date orders to $30 billion, both record figures. The large-scale customer base continues to broaden with expansion across neo-cloud or Tier 2 CSPs and sovereigns”.

With manufacturing locked in contraction and services still carrying economic growth, the divide between these two sides of the economy has become central to understanding today’s stagflationary pressures. Input costs continue to rise even as new technologies reshape demand patterns. The expanding adoption of AI could influence productivity and cost structures in unexpected ways. How these pressures resolve in 2026 will be essential to tracking whether stagflation persists, begins to unwind, or takes on a new form altogether.

Full disclosure: long DELL

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Manufacturing is experiencing the greatest price pressures. Consumer-facing companies, like retailers, are staring down customers who are increasingly unwilling to pay higher prices. These mounting pressures have yet to drag on the stock market. For example, even after Caterpillar (CAT) changed its guidance to incorporate higher estimated tariff costs, the stock pulled back slightly for a very brief period before rallying sharply.

Of course, the market’s general lack of concern for tariff costs, excluding this month’s sharp but brief churn from reigniting US vs China trade tensions, makes the Fed’s job ahead much easier. The market promises to focus on the positives to come from easing monetary policy and to ignore any inflationary impacts.

Here are the price-related highlights from each region that most caught my attention…

Boston

The inflation picture continues to gradually deteriorate in Boston. Boston produced benign inflation commentary in the July report, but several points of inflationary pressure showed up in the August report. Now, “most contacts expected to face at least modest further cost pressures moving forward, and some were concerned about a possible acceleration of prices in 2026.”

New York

This district delivered some of the sharpest inflationary commentary in the July report. In the August Beige Book, the Fed summarized businesses as expecting “a pickup in the pace of price growth in the months ahead” and now for October these firms are warning they “expect significant pricing pressures to persist.” The range of pricing narratives in New York remain the most colorful including one retailer that adjusted prices according to an estimate of demand elasticity for each of its products in an effort to accommodate cost pressures from tariffs.

Philadelphia

Like New York, Philadelphia provided a colorful description of broad-based pricing pressures. While price growth “moderated”, the Fed described some concerning practices in the district including “multiple contacts noted that some suppliers were citing tariffs when raising prices, even if their goods were not subject to increased levies.” This behavior broadens the inflationary impact of tariffs. Weakening economic conditions are pressuring the margins of consumer-facing businesses who are unable to pass along all the increases in input costs with many even “increasing discounts to sustain demand.”

Cleveland

Just as described in the prior Beige book “in general, costs were expected to grow at a strong pace in the coming months.” In recent weeks, “nonlabor input costs rose at a robust pace” with tariffs frequently blamed for the pricing pressures. In a familiar refrain, some retailers chose to discount prices. Some selectively rose prices. Some manufacturers chose market share over profits by holding prices steady despite cost pressures.

Richmond

Richmond returned to sparse commentary on inflation. The Fed reported that “on balance, year-over-year price growth remained moderate this cycle.” The contact-specific reports ranged from little to no price pressures. Some businesses have yet to pass along tariff-related costs.

Atlanta

Higher inflationary pressures are apparently just getting started in Atlanta. According to the Fed, “contacts warned that price pass-through resulting from tariffs has just begun and expect to see prices rise into 2026.” While firms currently use a wide variety of tactics to cope with cost pressures, particularly from tariffs, the “internal cost pressures continued to mount, and firms noted there was little room to cut costs further.”

Chicago

The inflation to come in Chicago is on the retailing side. Retailers are still trying to sit on price increases: “retailers were trying to hold off passing tariff-related cost increases on to consumers for as long as possible, though several smaller retailers reported already raising prices because of tariffs.”

St. Louis

As in Philadelphia, St. Louis reported an incidence of a business opportunistically increases prices where a “suppliers’ costs had increased despite having a primarily domestic supply chain.” As in other regions, St. Louis also called out insurance premiums and utilities as adding to the price pressure from tariffs.

Minneapolis

Minneapolis reported a very specific breakdown of pricing pressures: “One-fifth of District firms increased the prices they charged to customers in September from a month earlier, and a similar share anticipated increasing their prices in the month ahead. More than half of respondents reported increased input prices over the previous month.” Overall, prices increased “moderately” with more pricing pressure from input prices.

Kansas City

According to Kansas City, inflation next year could be higher than this year: “The anticipated acceleration of price growth was expected to be somewhat persistent; most firms reported they anticipate raising selling prices in 2026 at a slightly faster rate than this year.” Manufacturing firms are feeling the highest pressure as input prices push higher.

Dallas

Just as in other regions, manufacturers in Dallas were the hardest hit by input cost pressures. However, going forward, it is service firms that expect higher inflation while manufacturers expect “steady” price growth.

San Francisco

With “somewhat” weakening economic conditions, restaurants and insurance companies faced customer pushback on higher prices. Overall, prices “rose modestly” with retailers passing on increased input cost “mostly in the mid to high-end markets.”

Hedging the Inflation Call

As gold continues to soar, I recognize that the precious metal is serving as much more than a dour inflation hedge (the technicals in the chart below actually suggest a topping process may be unfolding. The recent decline in bond yields (rally in prices) reminds me that the bond market ranks inflation toward the bottom of its worries. Accordingly, I cannot adamantly plant a flag on the field of inflation (for example, I stopped fading the iShares 20+ Treasury Bond ETF). Still, I consider inflation to hold plenty of potential to surprise to the upside given a rate cut cycle has restarted with plenty of inflationary pressures growing, not diminishing, in the economy. The Beige Book is a key tool for sniffing out these pressures.

Be careful out there!

Full disclosure: no positions

The post October Beige Book Includes Signs of Higher Price Pressures in 2026 appeared first on Inflation Watch.

Each Federal Reserve district or region faces slightly different economic issues and opportunities based on the qualitative evidence presented in the Beige Book. Still, each provides an important piece of the puzzle for the direction of inflation. The Fed Presidents take the observations from their districts into the FOMC meetings. Given the concerning signals about inflation in these observations, I strongly suspect the September meeting will produce lively debate and perhaps more dissenting votes than the last decision on monetary policy.

Here are the price-related highlights from each region that most caught my attention…

Boston

Boston produced benign inflation commentary a month ago. This time around, the district noted tariff-driven reasons for increased prices for clothing and manufacturing. However, in signs of capped pricing power, home furnishings retailers noted their manufacturers absorbed more tariff costs than expected. Domestic manufacturers did not pass on the full costs of tariffs for fear of losing business. The prognosis for future inflation is not clear: “A few contacts expected further cost and price increases in the coming months, but most did not comment on the outlook for prices”.

New York

This district delivered some of the sharpest inflationary commentary a month ago. Inflationary pressures remain strong in New York: “Pricing pressures continued to rise during the reporting period, driven mostly by tariff-related costs. Selling prices rose moderately, marking some acceleration since the previous period. Input prices continued to rise at a strong pace.” Not only are businesses planning to pass on increased costs from tariffs, but also they increasingly expect “a pickup in the pace of price growth in the months ahead”.

Philadelphia

Inflation expectations are up significantly year-over-year in the Philadelphia district. Most concerning is the impact of inflation on lower-income households whose incomes are increasingly falling behind rising prices.

Cleveland

Cleveland continues to get hit hard by cost pressures: “nonlabor input costs continued to rise at a robust pace in recent weeks…Contacts generally expected costs to grow at a strong pace in the coming months”. Narratives of tariff-related impacts ran throughout the descriptions of cost increases except for the IT-related pricing pressures. Plans for passing along increased prices to customers ranged from 100%, to slow increases, to a wait-and-see approach given tariff uncertainties. Pricing power actually decreased for some contacts with metal manufacturers even cutting prices to remain competitive. Reduced pricing power and increasing input costs will translate into lower margins and slower hiring.

Richmond

Richmond previously had little to say about prices. For the September Beige Book, Richmond reported significantly higher price increases for non-manufacturers than for manufacturers. Tariff-related impacts had an outsized influence on pricing pressures: “the firms that reported the largest increases in year-over-year prices received generally had higher exposure to tariffs”.

Atlanta

Small businesses are particularly suffering from inflationary pressures in Atlanta. They must have minimal pricing power given they are cost-cutting and changing product mix to cope with higher costs. Inflationary pressures, including tariff-related impacts, are expected to persist: “many contacts expect to realize inflationary impacts from tariffs through the second half of this year and into 2026, and even those with little or no tariff pressure anticipate increasing prices to offset other costs”. The cost and price pressures unrelated to tariffs present a major wildcard for monetary policy since there is little rational (yet?) to simply look past these pressures.

Chicago

Businesses in Chicago experienced and expect the same moderate pace of price increases. Interestingly, some retailers are holding off on passing along tariff-related costs until early next year. The timing of price hikes presents yet one more wildcard for monetary policy.

St. Louis

Business in St. Louis reported increasing inflation (a faster pace of price increases). Businesses reported a mix of fears that customers will soon no longer accept or afford price increases. Some are conducting price experiments to test customer’s price sensitivity. On the other hand, business reported price increases from tariff impacts AND “market opportunities to improve profit margins”.

Minneapolis

Inflation no longer sounds benign in Minneapolis. Half of survey respondents experienced price increases from the previous month and a quarter reported charging higher prices to their customers. As In Boston, competition in home furnishings will tightly cap price increases in that sector.

Kansas City

Businesses in Kansas City continue to experience pressure on profit margins from increased costs and the inability to pass on costs to customers. Some increases in input costs have become sticky as prices failed to respond to the removal of select tariffs.

Dallas

In June, 12-month expectations for price increases subsided a bit. In August, half of survey respondents reported negative impacts from tariffs including price increases. Plans to pass through these costs were “mixed”.

San Francisco

Once again, higher prices broadly hit the San Francisco district. However, lower demand in construction drove prices lower in that sector. Tariffs drove higher prices of “most inputs”. While many costs were passed along to customers, “in some instances, such as in food services and accommodations, weaker consumer demand led companies to absorb the higher costs”.

Inflation Will Stay Resilient

Just like a month ago when I used the Beige Book to support the case for a bottoming in core CPI, the latest Beige Book reinforces that bottom with higher inflation to come in the short-term. With the Federal Reserve on track to push through rate cuts anyway, gold’s breakout (see below) makes plenty of sense. Stagflation remains in the realm of potential outcomes given the various reports of slow and slowing economic activity alongside pricing pressures.

On the other hand, the current rally in the bod market suggests market participants are much more worried about slowing growth than inflation. I continue to manage my risks on the inflationary side of the ledger and accumulated Oct $87 puts on iShares 20+ Year Treasury Bond ETF (TLT) ahead of the CPI report for August….despite the bullish breakout for TLT.

Be careful out there!

Full disclosure: long GLD call spread, long TLT puts

The post August Beige Book Points Toward Higher Inflation to Come appeared first on Inflation Watch.

Inflation landed around 20% in 1947 according to the NY Times who also claimed it was the worst inflation America experienced over the past 100 years. The article did not specify the inflation measure, so for the purposes of discussion I assume the article referred to the entire Consumer Price Index (CPI). If so, then the 20% figure must have been for a particular month in 1947. The annual inflation for 1947 was 8.8% according to Investopedia, far short of the highest level over the past 100 years. Inflation the year before soared to 18.1% from 1945’s 2.2%. While it looks like the NYT selectively picked an inflation number for effect, it is clear that sentiment on inflation during this time was as dour as one should expect during a period of exceptionally high inflation. The following bullets are mostly direct quotes from the article reordered chronologically:

• In December 1947, more than 70% of adults said they would want their own wages to decline in order to bring prices down.
• In polling throughout 1947 and 1948, a majority supported reinstating wartime rationing and price controls.
• Before the conventions, voters said a plan to address high prices was the No. 1 priority they wanted in a party platform. More voters said they wanted prices to be addressed over the next four years than any other issue.
• In June, 1948, a majority of voters expected prices would be higher in six months (at election time in November, only 18% of voters expected the same).
• As late as summer 1948…adults expected prices to keep rising.

A combination of economic pressures sent inflation soaring.

Post-war supply shortages combined with the end of price controls to light a fire under inflation. The NY Times article pointed out that labor unrest following World War 2 exacerbated supply shortages. For example, the National WWII Museum in New Orleans observes: “With the end of the wartime no-strike pledge, workers across America expressed their frustration with wages and working conditions through a series of strikes that involved over 5 million people from the end of 1945 and into 1946.” Strikes hit broad swaths of the economy: mills, telephone service, meat packing, and General Electric (a major industrial employer at the time). The railroad strike of 1946 crippled large parts of the economy (the interstate highway system did not start until Eisenhower’s presidency in the 1950s). No doubt all this economic disruption helped dampen the national mood alongside the resulting price pressures.

Layer on pent-up consumer demand and the economy got hit with a perfect inflationary storm. Benefits from the GI Bill, not mentioned in the NY Times article, helped to stoke consumer demand. For example, while the country built very little housing during World War II, the GI Bill offered returning soldiers low interest, zero down payment home loans with better terms for newly built housing. Although Black servicemen were often denied benefits of the GI Bill (and thus they were often left in poverty), such incentives must have contributed to increased pricing pressures in the economy.

The NY Times article also did not consider the potential price distortion from large amounts of U.S. resources funneled into the Marshall Plan. The Marshall Plan kicked off in 1948, and it is plausible suppliers felt emboldened to increase prices in anticipation of the largess. Supply responses in Europe would eventually erode this pricing power.

Fast forward to today and we find parallel economic distortions putting pressure on prices. Massive fiscal and monetary stimulus stoked demand, especially for housing and related goods. Government supported pandemic savings have apparently supported on-going strength in retail spending. Wage growth has also supported robust consumer demand. While today’s labor unrest pales in comparison to post-war labor actions, the scales have tipped in favor of labor for now. Unemployment remains at historic lows, and employers have readily absorbed the rebound in the labor force participation rate. U.S. industrial policy could apply its own upward pressures on prices in the economy.

The Federal Reserve on the Sidelines of Late 1940s Inflation

The volatile cocktail of inflationary pressures must have complicated monetary policy. Compared to today’s tornadic monetary policy response, the Fed’s rate hikes in the immediate post-war years look exceptionally timid. The Federal Reserve essentially sat on the sidelines as the economy convulsed through its inflationary pressures. From “A New Daily Federal Funds Rate Series and History of the Federal Funds Market, 1928-1954“:

Today’s deflationists would have been particularly happy with the timid Fed of the late 1940s and early 1950s! Fresh memories of the economic devastation of the Depression no doubt also slowed the hand of the Fed. The NY Times article did not delve into the role of the Fed in allowing inflation to take its course in the post war years.

Inflation Today

Pandemic disruptions are mostly in repair, but Russia’s invasion of Ukraine has caused its own supply disruptions. The Israel-Hamas war threatens to cause disruptions in global oil markets and shipping lanes in the Gulf. Growing tensions between China and Taiwan and increasing authoritarian control over the Chinese economy have motivated companies to leave China in search of “safer” countries for production. This transition will likely pressures prices through increased production costs and the short-term transition costs.

In other words, while financial markets celebrate the end of the Federal Reserve’s fight against inflation, there are plenty of looming inflation risks, any of which could deliver setbacks to current trends. Seventy-six years ago inflation came to a boil and then yielded through the 1950s and early 1960s. A parallel peak for today’s inflationary era would be welcome news!

The post Inflation Now, Inflation 76 Years Ago appeared first on Inflation Watch.

““As we look ahead, we currently do not anticipate any relief from inflationary cost pressures in the third quarter. We expect aggregate global economic growth to remain positive with end-use market activity comparable to the second quarter, adjusted for traditionally lower seasonal demand. However, uncertainties exist regarding global trade policies, which may create uneven demand by region and in certain industries. Specific to PPG, we expect that the previously announced architectural customer assortment change will lower our third quarter year-over-year sales volume growth rate by between 120 and 150 basis points. We remain confident that our leading-edge technologies and products, which are bringing value to our customers, will facilitate our growth going forward….

Currently the new tariffs are starting to add some modest cost to our raw materials. Based on the strength in the US dollar in the second quarter, we expect foreign currency exchange rates to have an unfavorable impact to our sales in the third quarter”

This was the essence of the guidance industrial paint company PPG Industries (PPG) provided in its 2nd quarter earnings report. I added the emphases because the warnings on inflation and international demand were clear precursors to the company’s pre-earnings warning tonight. The stock traded down about 10% in after market trading in response to significant cuts in revenue and earnings guidance. I was most interested in the explanation which made the second quarter’s caution come to life (emphases mine)…

““In the third quarter, we continued to experience significant raw material and elevating logistics cost inflation, including the effects from higher epoxy resin and increasing oil prices…These inflationary impacts increased during the quarter and, as a result, we experienced the highest level of cost inflation since the cycle began two years ago.

“Also, during the quarter, we saw overall demand in China soften, and we experienced weaker automotive refinish sales as several of our U.S. and European customers are carrying high inventory levels due to lower end-use market demand…Finally, the impact from weakening foreign currencies, primarily in emerging regions, has resulted in a year-over-year decrease in income of about $15 million. This lower demand, coupled with the currency effects, was impactful to our year-over-year earnings and is expected to continue for the balance of the year.”

Instead of moderating, inflationary pressures are mounting on PPG. The weakness in China is telling in the context of the trade war with the U.S. The lower “end-use market demand” points to the trickle-down impact of “peak auto.” These warnings are each important given PPG has a market cap of $26.5B and trailing 12-month revenue of $15.4B. I fully expect other industrial companies to deliver similar news this earnings season.

Interestingly, Credit Suisse downgraded the stock in late September and the market responded by taking PPG down 2.8% on relatively high trading volume. The gap down confirmed the end of PPG’s post-earnings run and breakout above 200-day moving average (DMA) resistance. Until the downgrade the stock finally looked ready to challenge its 2018 high.

Source: FreeStockCharts.comThe market is supposed to be a forward-looking mechanism, so it is natural to wonder why PPG was rallying so well in the first place. I do not put all the blame on investors. I assume the company itself was partially responsible through its sizable share repurchase program. For the first half of 2018, PPG spent $1.1B on its own shares: 4.1% of the company’s current market capitalization. With this kind of aggressiveness, PPG should quickly move in on the new 52-week low to add to take out even more shares.

As earnings season unfolds, I will be paying close attention to company commentary on trade woes and inflation. The stock market has spent most of the past several months ignoring risks, so there are a good group of over-priced stocks out there waiting their turn for a douse of realty. Collectively, these warnings could be the catalyst that delivers the oversold market conditions I am anticipating.

Full disclosure: no positions

The post PPG Industries Warns of Intensifying Inflation Pressures and Weakening Demand appeared first on Inflation Watch.