U.S. Consumer Prices Trail Estimates, Testing Powell's View
Comment of the Day

May 10 2019

Commentary by Eoin Treacy

U.S. Consumer Prices Trail Estimates, Testing Powell's View

This article by Jeff Kearns and Reade Pickert for Bloomberg may be of interest to subscribers. Here is a section:

At the same time, apparel prices dropped steeply for a second month, falling 0.8% in April after a 1.9% March drop that was the most since 1949. Apparel only accounts for just over 3% of the CPI but a new methodology in March had dragged down the overall index.

Eoin Treacy's view

- I thought the above was an interesting figure in light of a conversation I had with a friend who is the owner of a garment factory in Los Angeles a couple of days ago. He said the tariffs were terrible for his business because they fall on imports of fabric but not on finished products.

The majority of garment manufacturing in the USA occurs in California and New York, both of which vote Democrat. Meanwhile the fabric mills are all located in southern states which tend to vote Republican. That’s a handy example of the partisanship of the tariffs as currently structured.

The threat of widening tariffs to all Chinese imports would have a material effect on apparel prices and could have an effect on inflation measures which have so far been quiescent. That is something to keep an eye on as the trade debate ebbs and flows because the threatened additional tariffs on the remaining $325 billion of Chinese imports would certainly include items that contribute to the inflation measure and costs will be passed on to consumers if they are in fact introduced.

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