Inflation is often regarded as a regressive consumption tax – it hits people at every income level when it enters into the economy. And despite what Federal Reserve Chairman Ben Bernanke has been saying about the current inflationary trend being transitory, the number of indicators showing the inflationary phenomenon is increasing.
On Monday’s “The Kudlow Report” on CNBC, host Larry Kudlow offered viewers another sign of the trend – Monday’s import-price report showing a jump of 2.2 percent for the month of April. The cause, according to Kudlow, is a weakening U.S. dollar.
“Let me start right off the top – these import-price reports never get the respect that they are due,” Kudlow said. “But they precede consumer price changes also. So look, we begin with total import prices. These things have been rising willy-nilly, they’re up to 11 percent. That is right, total import prices up to 11 percent and it wasn’t so long ago they were down around 3 percent here. So this is a huge increase. We run a big trade deficit and the dollar’s been falling. So guess what? Prices are rising on imports.”
With the volatility of commodity prices, many weigh core inflation – the same metric, less food and energy. And as Kudlow explained, there’s still a sharp increase shown.
“Now, second – I want to take out fuel because everybody’s going to say, ‘Oh, just look at the core,’” Kudlow said. “Well, OK. It looks better, but you’re still running at about four-and-a-half percent and the trend line is still high. So my point here is – beware, the Federal Reserve and others who tell you it’s all about food and energy and fuel prices, it’s not. Taking out the energy component the of import-price report today, you still see a rather sharp increase.”
According to the CNBC host, you can isolate China alone and still see evidence of the trend.
“I still believe China trade is ripping us off,” Kudlow said. “They’re not reciprocating. There are a lot of issues with China including the currency. But here’s an issue we don’t look at – import prices from China are rising significantly. Basically from about zero a year ago, now they’ve climbed up towards 3 percent. Look, China is essentially pegged to the U.S. dollar. The dollar is falling, so we’re importing prices there. China inflation itself [is] about five-and-a-half percent. So therefore, we are being bit by the exact bug that we released by our own QE2 pump-priming which lowered the dollar.”
Kudlow pointed to one other indicator, decreasing optimism among small business owners in the wake of this news.
“And finally one additional little — this has nothing to do with import prices, but humor me,” Kudlow said. “The NFIB, the National Federation of Independent Businesses – these are the small business guys, they’re absolutely vital to the economy. It’s slowing a little bit. I’m not going to push the panic button. But, I just want to point out that on their business optimism index – it is slowing the last couple of months. In fact, it’s gone now all the way back to last October. That’s not a great sign for small businesses, which are really the backbone of the economy.”