Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Rising Import Costs From China Echo the 1970s
Transcript
- Lucas: Luna, did you catch the import price numbers? Costs for goods from China just hit their highest level since 2008. That's a pretty striking data point for anyone watching the inflation story. Luna: I did. And it's not just a one-month blip—the trend has been building. What's driving it now compared to earlier in the year? Lucas: A couple of things. First, the tariff regime—Trump's latest global tariff, plus the forced labor justification that trade partners are pushing back on. Second, there's a structural shift: companies are trying to onshore, but that takes years. In the meantime, import costs rise. This is textbook supply-side cost push, very 1970s in feel. Luna: Speaking of the 1970s, it feels like every economic conversation these days touches on that decade. But the data we have right now—GDP growing at two point one percent annualized, unemployment at four point two percent—isn't classic stagflation. Lucas: Right, it's a mixed picture. We're not in the negative-growth zone. But the core PCE price index is still creeping up, and the 10-year breakeven inflation rate, though off its highs, is at two point two six percent. Input costs like these import prices feed into that. And if you're a small business importing components, your margins are getting squeezed. Luna: You know, that's a good point. It reminds me why we do this show—to untangle signals like these. If walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these episodes coming—buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, exactly. No pressure, just a little support goes a long way to keep it ad-free. So back to those import prices—the surprise gain in June, up for the first time in a few months, really caught attention. And it's not just China; overall import prices also rose. Luna: I saw that. And the headlines tie it directly to tariff policy. The forced labor justification is new—do you think that's more about politics or actual enforcement? Lucas: I think it's both. The administration wants to appear tough on China, and there's bipartisan pressure. But economically, it raises costs for importers who now have to prove supply chains are clean. That adds to the inflationary impulse. Luna: And it complicates the onshoring narrative. We heard Trump planning generic drug tariffs starting in 2028 with a two-year delay. That's a signal that onshoring isn't happening overnight. Lucas: Exactly. So in the short term, businesses and consumers are left holding the bag. The CPI at three hundred thirty-two point six is down a bit from last month, but core inflation is sticky. And with jobless claims dropping to one hundred eighty-seven thousand, the labor market is tight—wage pressure continues. Luna: Which leads to the Fed. Kevin Warsh has been homing in on three key phrases, according to the latest reports. What do you make of that? Lucas: The Fed is walking a tightrope. They see growth picking up—real GDP went from zero point five percent to two point one percent—but inflation is still above target. Warsh's phrases likely hint at patience, data dependence, and maybe a nod to the risk of overtightening. I'd guess they hold rates steady through the fall. Luna: So the stagflation echo is more about the feeling of stagnation in purchasing power, not necessarily the textbook definition. People are working, but their dollars don't stretch as far, especially for imports. Lucas: That's the key takeaway. If you look at the World Cup boost for bars and restaurants—that's a one-time event, not structural. The underlying trend is that input costs are rising faster than many businesses can pass on. That's the stagflationary pulse: high costs, modest growth. Luna: I wonder how long this can last. If onshoring accelerates, some of those costs come down, but that's years out. Meanwhile, consumers adjust. Lucas: They do. But the data we have today—import costs from China at levels we haven't seen since the Great Recession—suggests the adjustment phase is just beginning. It's something we'll keep tracking closely.