Weekly Wrap: Deals Made, Prices Low, and Everyone Working

Welcome to Friday, a day that merges Valentine’s Day, President’s Day, and Friday the 13th. This is a summary of the week’s business highlights, offering insights into the American economy, intertwined with a touch of presidential history and Valentine’s spirit.

This week, a discussion with Secretary of Commerce Howard Lutnick marked a note of optimism, as the fear of inflation under President Biden—termed “Bidenflation”—seems to have lessened. The New York Fed has also revived a tariff investigation that had been dismissed seven years ago.

Time to Bury Bidenflation

The consumer price index (CPI) saw a modest rise of just 0.2% in January, falling short of the anticipated 0.3%. Analysts are still awaiting potential price hikes driven by tariffs, which have been growing at an annual rate of 2.1%. Year-on-year, consumer prices are up by 2.4%. The core inflation rate also climbed by 0.3%, remaining steady at 2.5%, indicating its lowest since March 2021.

In other words, core inflation levels are back to what they were before inflation spiked. This can be attributed to what many see as excessive spending under President Biden and Federal Reserve Chair Jerome Powell’s choices. The economy is gradually recovering from disruptions caused by the 2020 election and subsequent aggressive Democratic policies.

Product prices have dipped by 0.2% and are only up 1% over the last year. Excluding food and energy, commodity prices remained stable, growing just 1.1% year-on-year. Particularly, prices for key home appliances, which are heavily impacted by tariffs, fell by 0.7% over the month, rising only 2% from a year ago. This contradicts the notion that tariffs reliably raise commodity prices that burden consumers.

As Neil Dutta from Renaissance Macro points out, it’s akin to a scene from “The Social Network”: if tariffs cause inflation, they should. But the evidence doesn’t suggest that inflation is being driven by tariffs.

Our favorite inflation measure also hit its lowest annual increase since 2021. The Cleveland Fed’s median CPI and 16% trimmed average CPI increased by only 0.2% for the month, down from December. The median CPI is now at 2.97% annually, the lowest since September 2021, while the 16% trimmed average stands at 2.72%, the lowest since May 2021.

Forgive the boast, but we anticipated this. Recent retail sales figures indicated low inflation trends.

December showed a lack of month-to-month growth, hinting more at inflation slowing than reigniting. In the past, years where December retail sales were flat have often led to lower inflation rates the following year. Weak demand usually translates to limited pricing power in January, causing deeper price cuts as retailers compete to sell excess inventory.

Commercial Break

This week, we engaged with Secretary of Commerce Howard Lutnick in the capital. We explored various topics, including American manufacturing revival, energy’s importance for prosperity, and innovative ideas to enhance the census. The recorded interview is available for viewing.

Before our discussion, the Department of Labor released the January employment statistics— typically shared on the first Friday of the month but delayed this time due to a partial government shutdown.

Job creation has surged, with the private sector adding 172,000 positions in January. Overall, including government cuts, the economy created 130,000 jobs—double expectations. Notably, the rates necessary to keep unemployment stable have dropped to under 30,000 due to a crackdown on illegal immigration. The unemployment rate has fallen to 4.3%, even as labor force participation is on the rise.

We seem to be achieving full employment alongside low inflation. The goal of ensuring the economy remains strong while tackling inflation appears to be within reach.

Tariffs Still Unwarranted

Seven years ago, an economist group studied inflation and tariffs, with Mary Amity, from the New York Fed, concluding that consumers have borne these costs without seeing significant price drops. As noted back then, their methodology was weak.

One key flaw is that a good portion of imports from China are transactions between related entities, leading to artificially inflated prices reported to customs. These tariff assessments tend to be problematic and offer little insight into realistic tariff impact.

Furthermore, their assumptions seemed to suggest that increased import costs always translate to consumer price hikes, which historically hasn’t proven true. Producer price data indicated businesses absorbed costs rather than passing them onto consumers, with CPI remaining unaffected by import tariffs.

Ironically, Amity’s recent research revisits this same flawed approach to assess 2025 tariffs, again asserting that the economic burden falls on businesses and consumers. This perspective has not changed since their original findings.

Curiously, major media outlets quickly amplified this new study without critical examination. Headlines proclaimed that U.S. businesses and consumers shoulder the tariff costs, reminiscent of a cliché horror movie moment where the threat reemerges when you think it’s over.

Ultimately, the critical question remains: Have consumer prices risen? The straightforward answer is no. Commodity prices increased by just 1% over the year and even dropped in January.

Perhaps it’s time to reconsider these persistent tariff narratives while focusing on real economic impacts.

Happy Valentine’s Day in Saudi Arabia

The U.S. officially established diplomatic relations with Saudi Arabia on February 14, 1945, when President Franklin D. Roosevelt met King Ibn Saud aboard the USS Quincy. Interestingly, FDR’s wife Eleanor must’ve found herself in an awkward position during this historic meeting.

According to reports, to maintain decorum, Eleanor was kept away while gifts of Arab gowns, scents, and jewelry were presented to her. It might have been a strategy to keep things stable within the royal household.

In the U.S., there’s no reason not to celebrate, as the candy price index dropped by 0.9% in January, flower prices went down by 0.3%, and jewelry prices fell 1.4%. So pick out something nice for your loved one.

XOXO.