US inflation holds steady in July despite import tariffs

0:04Hello and welcome to Business Matters. I'm Roger Hearing. On the programme today, inflation in the US doesn't seem to be rising by as much as feared, at least not yet. Also today, the problem with having too much renewable energy. In Cuba, the partial dollarisation of the economy sends their own peso currency tumbling. And why horror movies are thriving at the box office. And I'll be joined throughout the programme by two guests on opposite sides of the world. Saima Islam, journalist for the Daily Star, joining us on the line from Dhaka, Bangladesh. Saima, I'll say, A very good morning to you.

0:43Hello. Hi. Good morning. Good to have you with us. And on the other side of the world, Andy Euler, Energy Journalism Fellow at the University of Texas, who's joining us on the line from Austin. So, Andy, I'll say a very good evening to you. Good evening, Roger. How are you doing? Good, thanks, and good to have you both with us. Now, Zymer, I know you've got a bit of a cough, I've been told, so I'm sure we'll treat you gently through the programme, so don't worry about that. But, Tom, I did want to ask you, because I know you've been doing a couple of bits of research in Bangladesh at the moment.

1:11Just give me a sense of what you've been looking at. Oh, I've actually been working on surveillance and the surveillance economy in Bangladesh. This is the first time we've had a major breakthrough about the kind of surveillance state that Bangladesh had become over the last 15 years. This is the first time we have data because there's no transparency about that. And guess what? The UK actually exports surveillance equipment to Bangladesh and we're a repressive regime. So I don't know how that happened. Oh, dear. I can only apologize. Not in my hands, as you might imagine. Andy, let me come to you, because what's been catching your eye in the way of news in Texas today?

1:49Yeah, it's really interesting, because yesterday in Austin, there was a shooting. Three people were killed at a Target, basically a big box store in North Austin. So everybody's kind of talking about that right now. Austin isn't necessarily sort of grounds of Europe for these sorts of things. But, yeah, that's what people are talking about. And also the fleeing of the Texas Democrats from the state house to sort of avoid a vote on redistricting. Everybody in the sort of politics circle here in Texas is trying to figure out what's going to happen, whether or not the Republicans can mandate that they return and vote.

2:27This is a lot of this is coming from Washington trying to get more House seats in a redistricting and a redrawing of the maps. And the Democrats are not having it. Yeah, I know that's been a very big and controversial thing. Redistricting, or I mean, some would call it gerrymandering. I won't say it is. It's certainly something I know that is a bit of an issue there at the moment. Anyway, well, let's turn our thoughts perhaps to Washington and indeed to New York and the financial heart. Because after all the warnings that the US might see inflation rising as a result of Donald Trump's tariff policies, the latest consumer prices index figure, CPI, just out, suggests that prices rose just 2.7 % in the US in the year to July.

3:11Now, that seems to reflect a drop in petrol prices and no increase in food costs. But what's called core inflation, that's what excludes those items, saw prices rise by the most, in fact, since January. Now, despite all this, the president himself posted on social media, tariffs have not caused inflation or any other problems for the country. I asked our North America business correspondent Erin Delmore if that was the right interpretation of those numbers. There's a lot to like about the inflation numbers today. You know, I was sitting with an expert yesterday, somebody who really looks at foreign exchanges, and asking him how long will it take to see the impact of President Trump's tariffs work their way through to the economic data?

3:55When will we start to see the effects in numbers like what we got today, the CPI, Consumer Price Index? And he said it would be about two to five months. You know, it takes some time to work through supply chains and businesses have been absorbing costs. Consumers are going to start to pick up more of them, according to researchers at Goldman Sachs. And so this is really a fluid process. Here's the thing about the numbers. You know, the headline number, which is the big number that includes everything, did look better. It beat expectations. You know, prices are rising. So when we talk about inflation, we talk about the rate of inflation.

4:25Is it rising faster or slower than it did last month or last year or than economists expected? And in this case, that rate was a bit lower than expected. That's great news. But when we look at core inflation and that strips out volatile food and energy prices, that number was just a tick quicker, the rate of inflation, than what was expected. That's less positive news. So a little bit of a mixed bag once you dig under the hood. But, Erin, at the same time, we do also see in terms of the tariffs and tariff effects, one of the major ones, of course, which is of greatest concern perhaps to investors, is what's going to happen with China.

4:59And we know that's all been put off now again to November. So maybe there are reasons for the markets to be reasonably optimistic about the situation. Exactly. Exactly, Roger. That is definitely something that is on investors' minds today. a nice carryover from Monday for them. You know, we see a couple different things happening at once. One is that we do see another 90-day pause put in place, and that works. You know, we always say, and you and I talk about this, that markets don't like uncertainty. That's true. Markets will settle for a pause. They'll settle for a little three-month detente.

5:31We're also seeing a little bit of movement on export controls, whether the U.S. will send some chips over to China that are, used for, let's say, AI applications, artificial intelligence applications. We're seeing some reluctance from China there. And it's a good reminder here that this isn't just about trade between the two countries. There's actually a lot wrapped up in this, not least of all, also rare earth metals and things of that kind of importance. So look, it's a huge thing on investors' minds. But between that and the inflation data, they have a lot of reason to feel buoyant today. And it's showing in the market close.

6:04Erin Delmore there. Yeah. Andy, It's interesting, isn't it, that the inflation wasn't perhaps as bad as some had feared, or is it just a crisis delayed? The markets certainly seem to think – well, they think it's OK at the moment anyway. Yeah, and I think they're willing to sort of take any good news and put their money where their mouths are, I suppose. Yeah, no, it's really interesting. I was sort of thinking about this also in the context of the jobs numbers that we saw just a few days ago. And those numbers were not great. And so you have inflation on one hand, you have the sort of sluggish hiring numbers here in the United States, and then everything sort of pointing to what the Federal Reserve is going to do when it comes to interest rates.

6:48It looks like as a result of these inflation numbers, they'll go ahead and probably cut interest rates to try to basically buoy the job market and investors and businesses into hiring. But yeah, no, it's a really interesting time to be an economist here in the United States because you're sort of looking at everything and then you're hearing about 90-day pauses on tariffs. You're hearing about sort of what's happening with our neighbors, Mexico and Canada, whether they're sort of facing different challenges and whether or not we're going to sort of re-up stakes with them. And so you get this data.

7:29And then not to mention the Bureau of Labor Statistics sort of revamping their leadership as a result of some of those sluggish jobs numbers that I was talking about. Yeah, Donald Trump getting rid of the person who brought the bad news is the way it seemed to be. You trust them, right? Well, yeah. And Zyma, let me come to you on this because it's interesting. You know, while I think people, a lot of people in countries like yours have been, you know, had pretty hefty tariffs put on them, it's seeing that potentially the problems might come home to U.S. consumers. I suppose people might feel a bit of schadenfreude in all this.

8:03A little, yes, because, you know, we're being slapped with the 25 percent tariff and that's on top of the existing 16 percent. and at the end of the day, actually, the producers do have to bear about two-thirds of the tariff and only one-third does get passed down to the consumers. But that's still a lot. That's still a lot that's bringing after all the consumers to pay for very basic things, like T-shirts and jeans. Well, indeed, and actually, apropos that point, I've actually been speaking to someone who works in the garment industry, in fact, in the US. It's a company called Carvu, which is an outdoor apparel and clothing company based in Seattle.

8:44And I got a reflection on how the tariffs are affecting his business from the owner and founder, Barry Bum. When I started, I started with hats and some clothing, and I still make that original stuff here. So I'm in a different part. So I have some U.S. stuff, and we import and design stuff that we can't make in the United States, It's more design-centric stuff in Vietnam, India, and China. So we're pretty spread out, and all those countries have been hit really hard with this new American-grade tariffs. And that, of course, is hitting your bottom line, I'm guessing. Give me a sense of how that's working.

9:21Well, example, I mean, like you said right before, the tariffs, most everyone absorbed it for this fall season. You know, we're in a supply chain. We're about eight months out, but the prices are going to definitely have to go up 30 percent to pay for these extra duties. Example on a shirt from China that's or let's say India now with the$20 shirt is 19 percent duty. It's, you know, now with 55 percent duty at 74, that's$14.90 on top. No company can absorb that. So obviously the people that are going to get hurt are the American consumers. and that potentially the price will be too high for anyone to even buy it.

10:02Well, I was going to ask specifically about that, Barry, because you saw 30 % up, you say. I mean, are people going to buy what you are selling at that price? That's the scary thing. That's what everyone, and I'm not alone in this. I mean, this is every industry. I mean, it's not apparel. I mean, it's lighting, it's plumbing supplies. So at least I have some pain out there when I talk to other people. But it's going to be interesting on what companies can afford, you know, in their bottom line to even stay around to make profit. But right now, definitely all our profit and working capital is going to pay these extra tariffs.

10:37Barry Barr there of Carvu in Seattle. Very much to your point, Zyma, about, you know, someone's got to pick up the tab, haven't they? Yeah, yeah, absolutely. And it's going to be the consumers. But I do want to also point out that when the suppliers, as in the bang of the shoe garment manufacturers, for example, pick up two thirds of the tab, they're not necessarily going to be paying out of their own bucket. They're going to be shoving the burden onto the workers. So the workers are going to have a harder time bargaining for, say, higher minimum wages in the coming years. Yeah, that's an important thing to remember, actually.

11:16Exactly right. That end of the process is also going to suffer. It's just inevitable. And I suppose in the end, Andy, in theory at least, and I saw some interesting numbers on this, the amount of money that's coming to the US government from these additional taxes is substantial. I'm$20 billion, something along those lines. But it still doesn't seem to do much for the deficit, which is part of the issue. Right. No, exactly. And the conversation that you and I have had 100 times, Roger, about sort of what are the goals of these tariffs? Is it revenue? Is it the trade deficit? Is it another way to tax the American consumer without telling them that you're taxing them, which is more or less what I kind of think of it?

11:56Tariffs are being paid out by the consumer. They're being paid out by the American – what Barry was exactly talking about, that shirt being$14.5 more to buy in the store now. That's me going to the store and buying that shirt for that much more expensive. It's a tax on the American consumer. They're getting away with it by not calling it a tax. They're calling it a tariff and they're talking about how much money they're earning. But it's it's money that they're earning from the American consumer. Well, Andy, I'll have to put the point to that. I'm sure the White House would if they were here, which is, yeah, but more jobs will come on shore in the U.S.

12:28More people will have jobs, will earn more money. Those jobs numbers you were talking about. And that will make it right. You think that's the case, Roger? I'm asking you. I'm waiting for manufacturing to come back to, you know, and for the American, you know, the person who's seeking that job in America to go ahead and start working in a manufacturing job. It's so interesting sort of talking to especially younger people about the jobs that they're seeking. And then you hear the administration talking about bringing manufacturing back to America and asking young people if they're going to take those manufacturing jobs.

13:02And most of them are not willing to do it. And so the sort of lining up of that new growth in those sort of blue collar jobs, that's great. And I think it's, you know, I was just reading stories about, you know, the timber industry in Montana suffering as a result of tariffs and things like that. But, you know, if you're bringing manufacturing back to America, awesome. I think that's a really, really good thing. I just hope that the American job seeker is willing to take those jobs. And it doesn't sound like they are right now. Gosh, interesting. They won't even take the jobs. Well, let's talk.

13:35Let's move our focus from one economy that has some question marks over it to one economy has an awful lot of question marks over it. I'm talking about Cuba. Not far off, of course, the US coast, of course. Now, Cuba's beleaguered economy passed another rather worrying milestone on Monday. The currency there, the peso, traded on the informal market at an all time low of 400 to the dollar. Now, this follows the partial dollarization of the state-dominated economy, stoking social tensions amid scarcity of basic goods, runaway inflation and deteriorating infrastructure and public services. And all this is causing consternation among Cubans.

14:15Cuban money here in itself is useless, completely useless. It's only good for buying food and even then, barely. Everything is dollars and dollars. And wherever you go, it's dollars. And here, I don't get dollars. The government doesn't give me a dollar in my hands. At 400 pesos to the dollar, we're talking about a pretty poor wage for us, who earn 2 ,000, 3 ,000 or 5 ,000 pesos. Look at the math. How many dollars can you buy with that? And what can you do with it? You can't buy anything. In the end, to buy an appliance, you have to save for five or six years, given your salary and the price of the appliance.

14:58I receive the dollar through remittances and it helps me to come here to the stores with these dollars and I can buy the products that I don't have access to buy on the streets because I buy them here in these stores, which makes my life easy. The views of some Cubans reacting to the dollarization of the economy, introduction of dollars as means of payment, essentially. Well, I've been talking about all this to Ricardo Torres. He's a Cuban economist based in Washington. The issue here is that the most important, you know, valuable goods and services tend to be sold only in dollars. So that's a problem.

15:36Like a lot of food, you know, part of the food is sold in dollars in those dollar stores. You know, items that you need for your daily life. Also, now most houses are sold in dollars. cars as well, transportation within the country, air, ground, etc. So you need dollars to access those goods and services. Then if you don't have them, it becomes a problem because you don't have access to those products. And I think I'm right in saying most Cubans don't because they don't earn in dollars, do they? That's a contiguous problem to that, which is so most actually have to go through an informal market because the government refuses to acknowledge or to accept that those transactions are valid and buy dollars or other foreign currencies.

16:29And this is on what you might call the informal or the black market. Yeah, it's informal because the government doesn't sell or buy dollars openly in a formal market. No, it doesn't. So if the people don't have, and I think it's as many as 40 % of the population, don't have access to this. This makes for a two-tier society. There are those who can get dollars, I guess perhaps from people they know overseas, and the rest. Yeah, it's a divide. You may say that Cuba society right now is divided alongside those who have access to dollars one way or the other, either because they are paying dollars for whatever reason or because they get dollars from their relatives.

17:10Sometimes also it is the case these days in Cuba that some Cubans get so much Cuban pesos that they can afford to buy dollars in that informal market. So why has the government done this? Because surely one of the principles of Cuba from the beginning of the foundation of the modern state was more equality. Since 1959, the idea was there wouldn't be rich and poor. To be honest, it would be unfair to say that the government is doing this intentionally in terms of, well, we want some part of society to not have access to dollars and then via dollars, you know, goods and services. The problem is that the economy is not doing well.

17:49It hasn't done well for a long time. And then what's happening now is that the government desperately needs dollars to buy even basic stuff like fuel, fuel medicines and food and the like. And so they are creating all of those mechanisms to get access to the dollars that are circulating within the economy. And that creates that problem. About the Cuban economy. Andy, I mean, this is this is an economy that, well, whether it's directly because of the the embargo, whatever, but it's absolutely being ground into the dirt, isn't it? Yeah, no, you're exactly right. And it's it's sort of I was sort of thinking about, you know, years ago, the Obama administration had been talking about opening up and basically making it legal for citizens of American citizens to go to Cuba and spend money.

18:43There was this idea right before the president left office. There was this idea. I remember reporting on it and I remember planning a trip to Cuba because the whole idea was that there was going to be an opening of the human economy to American consumers. And everybody to a person would talk about even back then. This is, you know, 2015. People would talk about just bring a whole bunch of dollars, just bring cash. because even back then, that was how you paid for everything, that the dollar could sort of get you whatever you wanted. It was interesting sort of reading up on dollarization. And, you know, that's exactly right.

19:19I don't think it's sort of, you know, formal policy, the Cuban government that they're trying to make things based on the dollar. It's just that's what – that's the currency that sort of curries favor with everybody who's transacting business, right? Yeah, of course. I mean, and let me just clarify this. Andy, could you go to Cuba if you wanted to? I could not. From Texas, I could not. Not even if you went via – I mean, would you have a problem if you turned up in Cuba with a U.S. passport? Is that the problem? That's correct. So I could go by – I think you can kind of get around it if you go to Mexico first.

19:54You can take a connecting flight to Havana. I could not fly from Austin, Texas to Cuba. That's right. Wow. Interesting, isn't it? And I wanted to pick up with you about dollarization, because a lot of economies that are, I mean, not in as bad a position as Cuba, but the dollar is becoming even more dominant to the point where people are talking about alternative currencies, international currencies. But in Bangladesh, do people use the dollar at all? The dollar is definitely a dominant currency in terms of like how good the economy is doing. So it's a marker of health for us. just a year back the economy was in absolute shambles.

20:35The dollar was at its highest and Bangladeshitaka was at its lowest. And people like me, we were actually stockpiling on dollars. I mean, I did that. I thought that that would be the safer thing to do because when I was I remember going abroad, I was going to Europe I think, and I had such a hard time just being able to get 200 euros out of a bank, just 200 euros, which is nothing. And I was going all over the city trying to get that in cash because I needed the cash. So I struck by it on that, and then the government fell, and we have a new government, and suddenly the economy's doing much better, and I don't know what to do with all of those dollars because the value of that has already fallen.

21:18I'm sure there's some Cubans who could give you an idea, yes. But it's interesting. Yeah, it's interesting. So lots of dollars because dollars in the end, and this is still true, Andy. We talked about the euro perhaps becoming a more obvious currency or even some Chinese alternative. But at the end of the day, if things are difficult, people get greenbacks, don't they? You're exactly right. And it's not just travelers or folks who are trying to sort of stockpile cash cold. It's traders, right? That's sort of the currency that you retreat to when things are questionable or things are bad. So, no, you're exactly right.

21:52It's sort of that fiat currency. And I know the government, the president doesn't necessarily like it, but that's the way it's going to be. And there's sort of all of these different conversations about whether a strong dollar is great or a weak dollar. Those conversations happen in Washington, and they happen more and more these days. And there are a number of countries that I think have actually completely adopted the dollar now around the world. I think Zimbabwe certainly did for a while. There we are. It's a hard currency to shake in terms of its dominance globally, I think. And the Cubans are certainly experiencing that.

22:23Right, well, in the next part of the programme, we're going to be talking about wind energy and renewable energy generally. It might not be as good as you might think when there is a lot of it produced. Bit of a weird subject in a way and a bit of an anomaly, but we'll explain. We'll also talk about rare earth and we'll also talk about horror films. Yeah, pretty much unmissable. Stay with us. We're back in just a few moments.

23:02Welcome back to Business Matters with me, Roger Hearing, and my guest today, Andy Euler and Zyma Islam. Now, we all know that the world needs more energy from renewable sources, wind, solar, tidal, geothermal. But in Scotland, in the first half of this year, wind farmers were paid not to produce almost 40 % of their planned output. So they switched the windmills off. The reason? The electricity couldn't be stored or used locally and there wasn't the wiring to take it anywhere else. Well, Phil Hewitt is a director at Montel Analytics, which provides data for the electricity industry across Europe, and he explained to me what was going on.

23:44What's happening is that as more wind is being built out in Scotland and specifically northern Scotland, we're finding that increasingly large amounts of wind is having to be turned off because there's not enough grid capacity to move that wind south towards the demand in the island of Great Britain, which is London, the south-east and the Midlands. What happens is the wind farms are producing the power and then they're switched off so they don't produce more power because it's got nowhere to go. The issue is that there's not enough capacity on the cables. So the cables are limited in size. So in northern Scotland, which is a place which doesn't really have that many people.

24:20Historically, there's not been much of a need for grid infrastructure. Now we're building wind farms there. The problem is that we can't move the wind power when the wind blows through that existing network because it was built essentially to move power from the south to the north, and now it's going from the north to the south. And this costs, doesn't it? Because you have to pay the people who are supplying the power even when they're not supplying the power. It's not a just turn it off and we won't pay for it. Yes. Wind farms generate electricity and they get paid a subsidy. So if they have planned to sell that electricity to receive their subsidy payment, then what they will want to do is to get paid for that lost subsidy.

24:59So they then tell National Grid, if you want to turn me off, you will have to pay me a certain amount of money. And the amount of money, just for comparison, I think it's about£117 million or$180 million or thereabouts. Yes, around that, yes. which is money for nothing in effect so yeah so if they if they would have generated they would have got the subsidy so so they're basically asking for their subsidy cost back and they're also charging a little bit extra because if you keep switching your wind farm off and on there's a risk that you will damage the wind farm so they charge an additional amount on top of that to cover that margin it doesn't sound a very efficient way of managing any of this it's not too efficient no it's a result of the build out of wind in northern scotland and the build out of grid has not been as fast.