Latest Inflation Numbers and Discussion

[Montecfo]

Well, I would say tariffs are a tool. A tool when used properly can result in benefits both economic and otherwise.

And when properly used they are even wise to use to level the playing field, and to create economic incentives for desired actions.

But I will add they are kind of a side issue when it comes to the inflation discussion because they do not result in ever escalating costs. Instead they are more of a one time bump

 

[Qs Laptop]

But I will add they are kind of a side issue when it comes to the inflation discussion because they do not result in ever escalating costs. Instead they are more of a one time bump

True, but they can be one time bumps that occur across industry segments at various times making it seem like a sustained rise in escalating costs.

Consider Stellantis Ram pickups vs. Lexus RX and NX models. The Ram pickups are made in Mexico. The Lexus vehicles are made in Canada. There is a glut of Ram pickups in inventory, whereas the Lexus vehicles are being bought as fast as they are being made. If tariffs went on to Mexican imports, in this case Ram pickups, it wouldn't affect the price of Ram pickups until the existing inventory already in the U.S. is sold and more is imported. That could be 6 or 9 months or even a year.

Meanwhile, if tariffs were placed on Canadian imports it would affect Lexus pricing almost immediately.

The net result is that automotive pricing would appear to be rising over months and not just one bump at the same time.

Now apply this phenomenon across a wide spectrum of goods and you could have a steady sustained rise in prices over months to a year, resembling inflation.

 

[GenXguy]

Now apply this phenomenon across a wide spectrum of goods and you could have a steady sustained rise in prices over months to a year, resembling inflation.

Even longer. Big price increases - it's definitely inflation and significant.

 

[Qs Laptop]

Even longer. Big price increases - it's definitely inflation and significant.

It could be big price increases and it could be significant, if it lasts for months and on a wide variety of products.

There are workarounds. Mexican exporters set up satellite shipping facilities in another country and ship their stuff there first, then they bring it into the US. Or some of the subassembly of components now being done in Mexico is moved to a different country (even to the US.) It's not the end of the world.

 

[GenXguy]

It's not the end of the world.

I don't think anyone ever suggested that. But I bet that if countries/businesses try to workaround the tariffs, that will be addressed, further increasing prices on more imports.

 

[Montecfo]

The bond market certainly seems unconcerned. Notice too that the tariffs put in in 2017 were not inflationary and have remained in place.

And the Mexican and Canadian tariffs paused.

If people act within their economic interests all should go fairly well.

 

[GenXguy]

I haven't been keeping close track on McD but have seen several ads for the lower prices. It may only be local (in the Islands) as we have much higher prices than the mainland and there is more room to cut. I'm still not buying. I'm pretty much done with them - and most fast food.

Oh, we had a minimum wage increase here at the beginning of the year, so that always results in price increases worsening inflation in general.

 

[Koolau]

Oh, we had a minimum wage increase here at the beginning of the year, so that always results in price increases worsening inflation in general.

It also seems to reduce service. Fast food outlets replace more and more empl*yees with machines when wages rise.

I guess I'm old school and generally hate buying food with a machine. Oddly, I've noticed that those few empl*yees remaining are even less interested in helping to place an order. Higher pay = poorer service. What's up with that?

 

[GenXguy]

It also seems to reduce service. Fast food outlets replace more and more empl*yees with machines when wages rise.

I guess I'm old school and generally hate buying food with a machine. Oddly, I've noticed that those few empl*yees remaining are even less interested in helping to place an order. Higher pay = poorer service. What's up with that?

Yeah, I hear that. I always liked Steak-n-Shake, with their table service and good food, and I tipped the server, at the table usually. Now, I have to order from a kiosk and go pick up my own food from the counter. But the prices are higher and they still want a tip.

 

[2HOTinPHX]

Yeah, I hear that. I always liked Steak-n-Shake, with their table service and good food, and I tipped the server, at the table usually. Now, I have to order from a kiosk and go pick up my own food from the counter. But the prices are higher and they still want a tip.

I feel like sometimes we are just tipping so they don't mess with your food nowadays...

 

[frank05]

It also seems to reduce service. Fast food outlets replace more and more empl*yees with machines when wages rise.

I guess I'm old school and generally hate buying food with a machine. Oddly, I've noticed that those few empl*yees remaining are even less interested in helping to place an order. Higher pay = poorer service. What's up with that?

I remember as a kid going to a Horn and Hardart automat and picking out food displayed in small cubes. You would deposit the correct change and you could open the door to remove your food.

 

[Chuckanut]

It also seems to reduce service. Fast food outlets replace more and more empl*yees with machines when wages rise.

Many small privately owned restaurants in my area are closing their doors for good after the latest round of minimum wage increases.

Some of the cities used to let employers use some tip money to backfill up to the minimum wage. But this year no more of this onerous “exploiting” the workers is allowed. Servers get all their tips and the full minimum wage. So instead people are losing their jobs or seeing their hours cut.

 

[Koolau]

Yeah, I hear that. I always liked Steak-n-Shake, with their table service and good food, and I tipped the server, at the table usually. Now, I have to order from a kiosk and go pick up my own food from the counter. But the prices are higher and they still want a tip.

Yeah, S&S used to be my favorite fast food place. So disappointed with them that I finally quit going a few years back. Glad I missed the transition to kiosk. That would have been the last straw - if I hadn't already decided their food was no longer high quality. Nothing stays the same, I suppose. Too bad, so sad, Ko'olau's mad, he's had.

 

[Montecfo]

Many small privately owned restaurants in my area are closing their doors for good after the latest round of minimum wage increases.

Some of the cities used to let employers use some tip money to backfill up to the minimum wage. But this year no more of this onerous “exploiting” the workers is allowed. Servers get all their tips and the full minimum wage. So instead people are losing their jobs or seeing their hours cut.

The push to raise the tipped minimum wage has been led by perhaps well intentioned "do gooders". It was not supported by businesses or by tipped wait staff because it was simply not needed. The result as you laid out is exactly what business people and economists predicted.

By definition a minimum wage prices labor above market. This reduces demand for that labor. The relationship is relatively straightforward.

 

[Koolau]

Yeah, it's so easy to "legislate" or pass a law to pay more to employees. Being paid more doesn't suddenly make a person more valuable to what ever organization they w*rk for.

The theory is that employees demonstrate that they are worth more and THEN they get paid more. If employers do not recognize the increased value, the w*rker has to push (or get their bargainer to push) for appropriate pay.

Giving away someone else's money is easy and "fun" but it may not achieve the desired result but YMMV.

 

[MichaelB]

If people act within their economic interests all should go fairly well.

Not sure what this means, but some countries have chosen policies that are in their interest but against the interest of other countries. The only time trade goes “fairly well” is when it is truely open. This is not the case today.

Tariffs are indeed a useful tool, but they are also a very dangerous one.

 

[Montecfo]

Not sure what this means, but some countries have chosen policies that are in their interest but against the interest of other countries. The only time trade goes “fairly well” is when it is truely open. This is not the case today.

It means if exporters want to avoid tariffs they should provide something of value in exchange for reduced tariff. This is in their economic interest.

I agree that free trade is best. But the world is not like that. They take advantage of US open markets while subsidizing and protecting their own industries. This is not free trade.

But it is fine until the US loses patience with a unilateral free trade policy. Like recently.

Tariffs are indeed a useful tool, but they are also a very dangerous one.

Anything useful can also be misused, that is true.

 

[MichaelB]

It means if exporters want to avoid tariffs they should provide something of value in exchange for reduced tariff. This is in their economic interest.

I agree that free trade is best. But the world is not like that. They take advantage of US open markets while subsidizing and protecting their own industries. This is not free trade.

But it is fine until the US loses patience with a unilateral free trade policy. Like recently.


Anything useful can also be misused, that is true.

Thanks for the response. In this case I see no economic benefit resulting from tariffs on Mexico and Canada.

I’m not yet clear what the policy expectation is for tariffs is on China but I’m doubtful any tariff related economic objective will be achieved.

 

[Montecfo]

Thanks for the response. In this case I see no economic benefit resulting from tariffs on Mexico and Canada.

I’m not yet clear what the policy expectation is for tariffs is on China but I’m doubtful any tariff related economic objective will be achieved.

Well the reasoning has been well communicated and so no need to repeat here. Benefits have already been achieved with respect to Mexico.

With respect to China, this is worth doing as I see it. We will see what can be achieved but we know the results of we do nothing

 

[MichaelB]

I thought we were discussing tariffs in an economic context. If used for other purposes I’ll not comment.

As for China, I assume the purpose is to impact and change the trade balance. I don’t agree with the “do nothing” comment and feel it’s more a matter of nothing has worked so far. Unfortunately I’m confident US tariffs on China won’t have much impact on the balance of trade but will interfere with Chinese and global trade flow.

 

[Montecfo]

I thought we were discussing tariffs in an economic context. If used for other purposes I’ll not comment.

Ok i think we are. Lessening the economic burden on the US public schools and safety net and ending senseless loss of life are valuable economic benefits that stand to be achieved.

As for China, I assume the purpose is to impact and change the trade balance. I don’t agree with the “do nothing” comment and feel it’s more a matter of nothing has worked so far. Unfortunately I’m confident US tariffs on China won’t have much impact on the balance of trade but will interfere with Chinese and global trade flow.

Well I would welcome understanding alternative plans that you are confident will work.

What has not worked is signalling weakness. China is not an honest trading partner and has world dominance ambitions. Economic muscle should bring serious concessions but if not at least it continues to push supply chains to friendlier locations-a valuable economic and security goal.

 

[MichaelB]

Ok i think we are. Lessening the economic burden on the US public schools and safety net and ending senseless loss of life are valuable economic benefits that stand to be achieved.

I suggest not going down that road.

Well I would welcome understanding alternative plans that you are confident will work.

What has not worked is signalling weakness. China is not an honest trading partner and has world dominance ambitions. Economic muscle should bring serious concessions but if not at least it continues to push supply chains to friendlier locations-a valuable economic and security goal.

What specifically will tariffs on China accomplish? They will not change the balance of trade. Putting a tariff on China is like putting a mile wide dam at the widest point of the Mississippi River (where is is 11 miles wide). Water will continue to flow around it and it will change the flow dynamics, but the same volumen of water will still flow.

The real issue is China has insufficient internal demand so it exports its production. The only economic options are for China to either increase its internal demand or reduce its total production. Neither of these will be accomplished by US tariffs on goods imported from China.

The one measure that would have an impact would be to disallow holdings of US Treasury assets by foreign governments and central banks. Of course, this would be globally disruptive, and cause a pretty substantial fall in the value of the US$, but it would also lead to a rebalancing of trade and the global economy in a way that would (eventually) favor the US.

 

[Koolau]

The one measure that would have an impact would be to disallow holdings of US Treasury assets by foreign governments and central banks. Of course, this would be globally disruptive, and cause a pretty substantial fall in the value of the US$, but it would also lead to a rebalancing of trade and the global economy in a way that would (eventually) favor the US.

It would also likely lead to inflation in the USA.

I thought we were discussing tariffs in an economic context. If used for other purposes I’ll not comment.

I think the current tariffs ARE being used for other than economic context so I'll comment no further to avoid politics.

 

[Chuckanut]

Some of the cities used to let employers use some tip money to backfill up to the minimum wage. But this year no more of this onerous “exploiting” the workers is allowed. Servers get all their tips and the full minimum wage. So instead people are losing their jobs or seeing their hours cut.

I should note in my state the minimum wage for restaurant employees is the same as that for all other workers, such as the people who work in a warehouse, gardeners, clerical employees, etc. IOW, tipped employees can do very well compared to other jobs of similar skill levels.

 

[Dtail]

It would also likely lead to inflation in the USA.


I think the current tariffs ARE being used for other than economic context so I'll comment no further to avoid politics.

Well that is a comment I agree with you. The comments from the longer time posters including me follow the pattern I thought it would.