The Bureau of Labor Statistics released the latest consumer price information today which shows overall low inflation at 1.6 percent (with energy price deflation, and flat food prices).
Excluding food and energy costs the total CPI remains low at 2.2%. This low inflation is the exact opposite of what financial media were predicting when President Trump began the series of import tariffs in 2017, which continued throughout last year.
When President Trump began the tariffs against global Steel and Aluminum imports; and when President Trump began the first set of tariffs against Chinese imports; almost all financial media went into fits of apoplexy claiming we would see massive increases in prices. Reality shows their doomsday predictions were completely over-hyped.
Commerce Secretary Wilbur Ross using a can of Campbells soup to deconstruct the ridiculous predictions of a massive price increases over tariffs.
Back in 2015 and 2016 CTH outlined the potential if Candidate Trump could initiate his economic program; we now call that MAGAnomics:
No other economy in the world innovates like the U.S.A, Trump sees this as a key advantage across all industry – including manufacturing. The benefit of cheap overseas labor, which is considered a global market disadvantage for the U.S., is offset by utilizing innovation and energy independence.
The third highest variable cost of goods beyond raw materials first, labor second, is energy. If the U.S. energy sector is unleashed -and fully developed- the manufacturing price of any given product will allow for global trade competition even with higher U.S. wage prices. (more)
What we are seeing in 2019 are the benefits of that exact program Donald Trump was campaigning with.
Real earnings are rising at a much more rapid rate than inflation, which means more spending money in the hands of American workers. Additionally, it is the foreign manufacturers, and multinational corporations, who are absorbing the costs from U.S. tariffs while the U.S. manufacturing base is reestablished.
This inflation data follows on the heels of the BLS latest numbers showing significant decreases in trade deficits in November 2018.
The U.S. monthly international trade deficit decreased in November 2018 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau.
The deficit decreased from $55.7 billion in October to $49.3 billion in November, as imports decreased more than exports.
The previously published October deficit was $55.5 billion.
The goods deficit decreased $6.7 billion in November to $71.6 billion. The services surplus decreased $0.3 billion in November to $22.3 billion. (read more)
This is important data because the import values are deducted from our economy when calculations of Gross Domestic Product (GDP) are announced. Lower imports means higher GDP growth rates. [The fourth quarter GDP figures are not out yet]
Inflation is low; wages are up; workers have more disposable income in their pockets.
Add that to lower import purchases during the holidays when shopping was high and you get lower overall durable good inventory…. Which means more manufacturing demand to fulfill orders….. Which means the U.S. economy is simultaneously self-sustaining and expanding.
The MAGAnomic plan is working.