by Louis Navellier
May 20, 2025
Last Tuesday, the Labor Department announced that the Consumer Price Index (CPI) rose by just 0.2% in April, which was below the economists’ consensus estimate of a 0.3% increase. Food prices declined 0.1% in April, while energy prices rose 0.7%, despite a 0.1% decline in gasoline prices. Excluding food and energy, the core CPI rose 0.2%, which was below economists’ consensus estimate of a 0.3% increase.
In the past 12-months, the CPI and core CPI rose 2.3% and 2.8%, respectively. Shelter costs (the “owners’ equivalent rent”) rose 0.3% and accounted for half of the CPI increase. Overall, this was the lowest 12-month (annual) CPI growth since February 2021 and a good reason for the Fed to cut key interest rates.
Two-days later, on Thursday, the Labor Department reported that the Producer Price Index (PPI) declined 0.5% in April. That was substantially below the economists’ consensus estimate of a 0.3% rise and the largest monthly drop in wholesale prices in over five years! In the past 12-months, the PPI rose 2.4%, down from a 3.4% annual pace in March. Wholesale service costs plunged 0.7% in April, while wholesale goods prices rose 0.2%. The core PPI, excluding food, energy and trade, declined 0.1% in April. Overall, the PPI demonstrated that wholesale prices are falling from the surplus goods “dumped” into the U.S.
Retail sales declined, in part due to lower prices. The Commerce Department announced that retail sales only rose 0.1% in April, after surging a revised 1.7% in March. Excluding vehicle sales and gas station sales, however, April retail sales rose 0.2%. Sales at gas stations declined 0.5%, mostly due to lower prices at the pump. Vehicle sales declined 0.1% in April. Interestingly, sales at bars and restaurants rose 1.2% in April, which is a good sign that consumers were out and about. Building materials and garden sales rose 0.8%, so spring weather likely helped to boost sales. Overall, only five of the 13-sectors that the Commerce Department surveyed reported sales increasing in April, indicative of a fickle consumer.
As I’ve been predicting, tariffs did not cause a rise in inflation, and they will not, in my view, since they are not high or permanent, and a rising U.S. dollar will offset some of the increase. For instance, the U.S. dollar surged last week in the wake of the latest tariff news. A strong U.S. dollar will help offset the 10% baseline-tariffs that the Trump Administration imposed on virtually all imported goods.
On top of the 10% baseline tariffs, there could also be added reciprocal tariffs imposed on some countries. However, as President Trump pointed out with British Prime Minister Starmer, there are no reciprocal tariffs being imposed on trade between Britain and the U.S. The favorable British deal was also intended to put pressure on the European Union (EU), which has installed much higher tariffs on U.S. goods.
Treasury Secretary Scott Bessent said the EU suffers from a “collective action problem” that is hindering tariff negotiations. By that, Bessent means that “the Italians want something that’s different than the French. But I’m sure at the end of the day, we will reach a satisfactory conclusion.” In other words, Brussels is having a difficult time reaching a consensus within the various nations of the EU.
Another reason that trade won’t cause inflation is that deflation continues in China. Last week, their National Bureau of Statistics reported that consumer prices declined 0.1% in April, their third straight monthly decline. Producer prices have now declined 2.7% in the past 12-months. The impact of higher tariffs are not fully reflected in the April data, so China’s deflationary spiral is expected to get worse.
Like me, Commerce Secretary Howard Lutnick does not expect inflation to come out of any new tariffs. Specifically, he said, “Don’t buy the silly arguments that the U.S. consumer pays. Businesses — their job is to try to sell to the American consumer, and domestically produced products are not going to have that tariff.” Lutnick also said, “Look, we have 25-percent tariffs that were set under President Trump’s first term,” and he pointed out that. “No consumers in America sit here complaining about those tariffs.”
On President Trump’s trip to Saudi Arabia, he brought multiple high profile business leaders like Elon Musk, Jensen Huang and Mark Zuckerberg. On Tuesday, Saudi Crown Prince Mohammed bin Salman signed a broad economic partnership strategy and a series of commercial agreements that the White House said amounted to more than $600-billion. I also noticed that Palantir Technologies CEO Alex Karp made the trip on Air Force One, so I expect new defense deals will also soon be announced.
And finally, we learned that Japan’s economy contracted at a 0.7% annual pace in the first quarter. Due to this economic contraction, the Bank of Japan is expected to postpone its tightening cycle. Japanese officials have been asking the Trump administration to reconsider tariffs, but whether a deal will be reached remains unclear. Japan and the U.S. have agreed to hold another round of tariff negotiations soon.
President Trump said he would set tariff rates for U.S. trading partners “over the next two to three weeks.” Interestingly, Trump said that his administration lacks the capacity to negotiate deals with all of its trading partners. Specifically, Trump said that on Friday Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick “will be sending letters out essentially telling people” what they’ll be paying “to do business in the United States.” During a meeting with business executives in the United Arab Emirates, President Trump added, “I think we’re going to be very fair. But it’s not possible to meet the number of people that want to see us.” He said there are “150-countries that want to make a deal.”
Earnings Reports are Strong, as We Await Nvidia’s “Grand Finale”
Now that 90% of the companies in the S&P 500 have announced their first quarter results, earnings are running at a 11.2% annual pace, representing the seventh straight quarter of improving earnings growth. Nvidia will once again be the grand finale for first quarter season on May 28th, and the S&P 500 earnings are now expected to deliver double-digit earnings growth for the remaining three quarters of the year.
President Trump and Commerce Secretary Howard Lutnick are busy announcing new deals for major America companies on their Middle East trip. The fact that semiconductor chip deals were announced on President Trump’s Saudi Arabia trip, which was attended by Nvidia’s Jensen Huang, is boosting AMD, Nvidia and Super Micro Computer after multiple large data center contracts have been announced.
Among EVs, Rivian and VW Group are working on an entry level EV for $22,500 that will be called ID Every1. This is obviously meant to compete with the BYD Dolphin that is capturing global market share. Tesla is discounting its Model Y and providing financing at 1.99% to move its bloated inventory, and a new rear-wheel drive Model Y is expected to be launched later this year to be Tesla’s cheapest vehicle.
Speaking of EVs, China has begun to resume allowing exports of rare-earth magnets. Rare-earth magnets are essential for EV motors and China essentially has a monopoly on rare earths production. Specifically, China mines around two-thirds of global rare-earth minerals and processes about 90% of the world’s supply. Obviously, China’s grip on rare-earth minerals will be part of the negotiations of its trade deals.
Navellier & Associates; own Nvidia Corp (NVDA), Super Micro Computer, Inc. (SMCI), and Palantir Technologies Inc. Class A (PLTR), in managed accounts. A few accounts own Tesla (TSLA), and Advanced Micro Devices (AMD), by client request only. Navellier does not own Volkswagen (VWAGY), or Rivian (RIVN), in managed accounts. Louis Navellier and his family own Nvidia Corp (NVDA), Super Micro Computer, Inc. (SMCI), and Palantir Technologies Inc. Class A (PLTR), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account. They do not own Tesla (TSLA), Advanced Micro Devices (AMD), Volkswagen (VWAGY), or Rivian (RIVN), personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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Inflation is Low and Falling – Despite What the Fed Says or Does
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