ISM Data Suggests Inflation’s Next Move Could Be Sharply Higher

Daily Write-Up

An interesting day of data, with the trade balance figures showing that imports from China have absolutely collapsed, falling below Covid levels, while imports from places like Taiwan and Vietnam surge higher. Taiwan’s increase makes sense, especially ahead of potential chip tariffs, which Trump indicated might arrive next week. It’s hard to say if this means anything significant yet, but tariffs are clearly reshaping global trade patterns.

The only thing rising in today’s Services ISM report appears to be prices, with the Prices Paid Index hitting 69.9—the highest reading since the fall of 2022.

Every other category fell in July.

The ISM Services Index is very close to triggering a recession warning. When combined with the elevated Prices Paid Index, this pushes the economy dangerously close to stagflation.

This divergence is something to watch closely, particularly to see if it starts appearing in the hard data. CPI should begin to rise in response to the elevated ISM Prices Paid Index. Currently, the gap between these two metrics is quite wide—how long that lasts is anyone’s guess.