Consumer Inflation came in cooler than expected. Jerome Powell’s tariff hands are forced!

Anyone who has been around me the last few months has had to hear me say non-stop that “tariffs don’t automatically cause out of control inflation”. As a matter of fact, there are times when tariffs are actually deflationary. When a product is too expensive from tariffs, some customers are not able to purchase the product. In this case, in order to move the item, a business will cut prices. Deflation. That’s not what’s happening here. Businesses are eating the tariffs and are not passing these tariff costs off to consumers, while keeping prices the same. This is one of the reasons why CPI has been coming in favorably the last few months.

Tariffs so far have been a success. We haven’t seen hyper-inflation. CPI numbers have remained civil after fear mongering from Wall Street experts and Ivy League Economists. A new added dimension to tariffs is the revenue that it’s bringing into the country. Tariff revenue will allow the U.S. to pay off its ballooning gov’t debt which stands at $37 Trillion. There have been rumblings of a rebate of these tariff revenues to U.S. taxpayers. That would be more than well-received. However, the main point is that we have not seen the 5-6% inflation the expert Ph.D’s told us we would see by mid-summer. We are still wallowing under 3% inflation.

Now let’s address the importance energy has played the last few months since Liberation day. We have had a steady decline in oil prices since Trump took office. Energy prices have been crucial in keeping inflation in-check. I always ask this question. If inflation is supposed to increase dramatically, then why is the price of oil falling? Oil has been down over 20% from June’s high (Israel/Iran conflict). Oil/Gas is the engine to the U.S. economy. This is another reason why war is not good. It’s inflationary. It drives gas prices higher.

That is why there was fear in the market with the bombing of Iran’s nuclear field. Would this spark WW3? The June bombing caused oil prices to almost reach $80. That military act seems like ages ago because oil is back to sub $65.

If you track Truflation, an independent private institution that tracks daily inflation, yesterday’s number is no surprise. As a matter of fact, the way daily real-time August numbers look right now (Aug. 13th), next month’s CPI reading will show an even lower inflation number.

Total U.S. consumer debt has reached a record high, with household balances across mortgages, credit cards, and auto loans all showing significant increases. Middle-class America needs relief. Yesterday’s CPI report provides a potential turning point. Jerome Powell needs to make a move. There is now conflict at the Fed where some governors think cuts need to happen and fast. The labor market is already beginning to show cracks. Powell’s reputation has already been tarnished for being too late. With yesterday’s numbers, Powell has no other choice. The rate cutting cycle will have to begin in September.

Tidbits:

▶️Excluding food and energy, core CPI increased 0.3% for the month and 3.1% from a year ago, compared to the forecasts for 0.3% and 3%. Federal Reserve officials generally consider core inflation to be a better reading for longer-term trends.

▶️A 0.2% increase in shelter costs drove much of the rise in the index, while food prices were flat and energy fell 1.1%, the BLS said. Tariff-sensitive New vehicle prices also were unchanged though used cars and trucks saw a 0.5% jump. Transportation and medical care services both posted 0.8% moves higher.

▶️Tariffs did appear to show up in several categories.

👉 For instance, household furnishings and supplies showed a 0.7% increase after rising 1% in June.

👉 However, apparel prices were up just 0.1% and core commodity prices increased just 0.2%.

👉 Canned fruits and vegetables, which generally are imported and also sensitive to tariffs, were flat.