July CPI numbers released

Not sure about that. If prices go up year-over-year 5% because of tariffs, once the first year has passed we'd see a drop in year-over-year inflation. But prices for everything would still be 5% higher than they were pre-tariffs. And the economy would still be slower because of the tariffs.

 

Tariffs continue to add costs to doing business as long as they are in place. I think what you mean is tariffs won’t “compound” year over year, it’s a one time bump. But as long as the tariff exists it adds cost on top of whatever the underlying cost of doing business would be without the tariff. For businesses choosing to “eat” the tariff cost, perhaps the “step up” to consumers won’t be so neat as a one time step - it’ll just be more incremental. Eventually prices rise to meet the tariff.

 

If you are tariffing 30%, that means there’s a lot more runway prices need to rise to meet the tariff than just 5%. I think that’s what you are missing. Price hikes wouldn’t just stop, even if the economy slows. The tariff would be a constant pressure until domestic production comes in at the new equilibrium. Isn’t that why stagflation is such a concern?

 

Yes, I know tariffs cause inflation. But in an economy where there is 0% inflation, and then tariffs cause a permanent price increase of 10%, year-over-year inflation will be 10% for a year. Then after a year inflation will return to 0%. That would be a case of transitory inflation because the inflation rate didn't stay high for an extended period of time.

 

Oklahoma, I see you agree with this and in a vacuum, it's true. But you still have a lot of other factors at play. Price inflation tends to lead to wage inflation which in turn could cause more price inflation. Also less competition could mean higher prices in the long term, fewer choices for the consumer and lower quality goods. And the tariffs and the uncertainty around them will result in lower growth too. Hope you're not banking on that 3% GDP growth continuing beyond Q2. It won't. All in all, these across-the-board tariffs are really dumb and will harm our economy.

 

Buried in the PPI numbers was the huge rise in the cost of fresh and frozen veggies. Wholesale up 40% in July. Mainly because this time of year, about 33% of our produce comes from foreign countries like Mexico. Probably won't get any better come our traditional harvest season because we'll have significant labor shortages due to immigration crackdowns. We've already seen this with fresh produce that ripens earlier in the years, such as cherries, which saw the largest price increase due to not enough labor to pick them from the trees.

In home food CPI dropped .1% in July, but out of home food costs rose .3%. Unfortunately, we should expect the out of home number to rise, and the in home to go in the other direction in upcoming months.

 

“But another argument for the limited impact is gaining traction: that tariffs being paid by importers are lower than advertised.

In a new study, Barclays economists went through census data to see what tariffs importers actually paid in May. They found that the weighted-average tariff rate—the average of all tariffs, adjusted for import volume from each country—that month was around 9%. That number is well below the 12% rate that they had previously estimated based on White House announcements, and far less than what some others have estimated.

JPMorgan economists argue that actual tariff rates in June were lower than headline averages suggest because importers switched to countries with lower tariffs or to domestic producers.

Initially, he says, he didn’t raise prices in response to tariffs, as the announced levies kept changing, and he didn’t want to alienate customers by constantly adjusting his prices. Paying the tariffs cost his company more than $1 million, he says. Now he feels more confident about where tariffs will end up, and his company is raising prices on the East Asian-made patches by 6% to 25% starting in September. “We just don’t see the sense of waiting anymore,” he says.“


https://www.wsj.com/economy/trade/t...06efa?st=dyS6Xq&reflink=article_copyURL_share