Where is the inflation?

June 12, 2019, Fairfax, Va.—Americans for Limited Government President Rick Manning today issued the following statement in response to the latest inflation numbers from the Bureau of Labor Statistics:

“It is time for the old mantra that ‘tariffs cause higher prices to the American consumer’ be put to bed.  May’s 1.8 percent year over year inflation rate should end the ‘tariffs are a tax on the American people’ for at least another month.  Why?  Because they are wrong.

“Pricing at the consumer level is dictated by multiple factors, but most importantly it is controlled by what consumers are willing to pay.  U.S. major retailers cannot just raise prices by five percent because their costs might have gone up, because they will lose a certain number of purchases at a higher price point.  Instead what retailers do is to seek out alternative suppliers (or in the case of tariffs – countries) where products can be produced at a cost that the consumer is willing to pay.  This is basic business practice, and not only do businesses follow it, but virtually every household does as well.  While tariffs do have the effect of changing business calculations, when they are applied in a targeted way, the market shifts away from that tariff induced higher priced provider in favor of goods manufactured in other countries.

“China understands this, which is why in response to tariffs, they have devalued the Yuan to shift the tariff costs to their populace through inflation and manipulate pricing to offset the tariffs.  The bottom line is that China knows that they cannot afford for Amazon, Walmart or other U.S. retailers to turn away from their manufacturers and wholesalers and purchase products elsewhere around the world, because it is harder to get a customer back than to retain one.

“When you hear that old saw that tariffs are passed along to the consumer, just smile and know that you know more about economics than the talking head who is parroting a line without thinking.”

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