Kotok’s view — Trump tariff-induced inflation is coming. It is the most likely case when you combine economic destruction and disruption, with higher costs because of an uncertainty premium, with a sales tax (tariffs) war among trading partners. IMO, only a serious slowdown or a recession (with rising unemployment above 5%) can keep the inflation rate subdued (under 3% and closer to 2%). IMO, it ain’t gonna happen. The Trump tariff damage is already done. Inflation’s green shoots are spreading and growing. Some quotes from others below offer the evidence.
- “With trend inflation still above (in some cases well above) the Fed’s long-term 2.0 percent goal and the impact of tariffs yet to be seen in the data, the Fed will wait to see whether the economy slows, or inflation rebounds in coming months before it changes policy again.” (Cumberland’s Chief US Economist David Berson morning note on March 13th)
- “February PPI was unchanged. That was well below the estimate of a .3% increase but mostly offset by a two tenths upward revision to January to a .6% gain from .4% initially. The core rate was lower by one tenth m/o/m vs the estimate of up .3%, partly mitigated by also a two tenths upward revision to January to up .5%. Versus last year, headline PPI is still up 3.2% y/o/y vs 3.7% in the month before. The core rate is higher by 3.4% vs 3.8% in January.” (Peter Boockvar on Substack on March 13th)
- “The 3-month annualized pace rises to 3.41% from 2.39% and the y/y rate rises to 2.78% from 2.65% in January. We are tracking core services ex-housing at 0.33%.We might update our forecast on Tuesday after import prices, but generally our estimate does not change much after PPI.” (Morgan Stanley research note, March 13, 2025, by Diego Anzoategui, Michael T Gapen, Sam D. Coffin, Lenoy Dujon, Heather Berger)
- “The CRB raw industrials index…rose another 1% by days’ end to the highest level since February 2023. While still well off its highs of 2022, the direction is now up. We remain bullish on long commodities like gold, silver and platinum and commodity stocks in mining, oil/gas, uranium, and fertilizers. Some of the 13 components in this index include everything from copper, steel scrap, tin, zinc, burlap, cotton, and rubber.” (The Boock Report on Substack, March 13th)
- “70% of Americans believe tariffs will push prices higher, poll finds.” (Reuters Daily Briefing, March 13th) Kotok’s view — How can you possibly expect inflation expectations to remain ”anchored” when 70% of the population expects higher prices from the Trump tariffs.
When added to the layoffs from DOGE, the outlook is for higher savings rates as people act in their own self-protective interest to hunker down in the face of a storm. Higher savings rates are the indicator of economic slowdown.
Note: uncertainty cannot be measured. It is like pornography: “You know it when you see it.” But the actions of consumers show rising uncertainty. And actions of businesses show a deferral of commitments because of the chaotic uncertain pattern of an “on again” then “off again” puzzling behavior from DT.2.0.
Reuters and others call this behavior “erratic.” I agree. And the latest threat is a 200% retaliatory tariff on imported alcoholic beverages. It’s enough to drive you to drink!
David R. Kotok, March 14, 2025
(The above was first published on The Kotok Report website and via LISTSERV. For details, visit https://kotokreport.com/.)