Headline CPI drops & Limited-Service CPI Lowest Since July 2020

Though inflation remains stubbornly sticky above 3%, the tick down to 3.3% is encouraging. The significant 2 month drop in limited-service CPI from 5% to 4.5% shows the power exerted by large QSRs turning on the discounting machines to recover lost traffic. We should expect to see more of this, as the negative press is pounding some brands and it will take sustained ‘value’ campaigns to reclaim that territory – which is important for a few of the QSR juggernauts. FSR CPI, on the other hand, had a slight tick up to 3.5% - which is only slightly higher than overall inflation and considering the high dependence on labor is not likely to lead CPI lower.

Tariffs & Inflation

I’m old enough to remember when ‘free trade’ was bi-partisan. Today tariffs are one of the few things in Washington that get bi-partisan support. Over half a century of globalization helped to keep cheap products moving across boarders fueling the consumer economy, this trend started plateauing over the past decade and has been in decline since before the pandemic.

Higher tariffs and ‘bringing manufacturing home’ is inflationary – there are other benefits, I’m not making a value judgement as to which is more or less important – but when we look at cold, hard facts, we are faced with choices & choices have repercussions. If we are entering an extended era of de-globalization, and we’ve resolved to not to expand legal immigration or create visiting worker visas to fill vacant jobs – then higher inflation is the course we are choosing.