Morning Wire - The Impacts of Hidden Inflation | Sunday Extra

Episode Date: June 4, 2023

As prices on things like groceries, gas, and cars continue to rise, other hidden impacts are contributing to the squeeze on the middle to lower class. Get the facts first with Morning Wire. Fast Growing Trees: Get 15% off your entire order. Use Promo Code ‘MORNINGWIRE’ at http://www.fastgrowingtrees.com/morningwire Learn more about your ad choices. Visit podcastchoices.com/adchoices

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And sometimes, a smooth, silky latte just wins. It's exceptional but effortless. Like actually effortless. Simply press, brew, and explore. Nispresso, what else? Keep exploring at nespresso.com. Inflation in the U.S. continues to take a costly toll on Americans. Higher prices at the grocery store, the gas pump, and shocking prices on new and used car lots have made headlines this year.

But the hidden impacts of inflation that are financially squeezing the middle to lower class have been largely skipped over. In this episode of Morning Wire, Daily Wire Senior Editor Cabot Phillips talks with supply chain consultant and economist Jim Nellis about what these hidden costs are and how they play into the larger issue of inflation. I'm Georgia Howe with Daily Wire Editor-in-Chief John Bickley. It's Sunday, June 4th, and this is an extra edition of Morning Wire. Hey, Jim, thanks for making time for us. It's my pleasure. So we want to talk a little bit about the piece he wrote recently on hidden inflation and the impact it's having. So I guess we'll just start there.

What are you looking at on that front? What I'm looking at is there are numbers that impact inflation that don't get reported. And the first one is actually the inflation rate itself. In April 2023, the CPI, which is used to measure inflation, was at 4.9% and everyone was celebrating. But what people don't realize is that is 4.9% year over year on top of what inflation was in April 22, when inflation was 8.3%. So if we compare where we were in April of 23 to where we were in April of 21, we're actually seeing 13% inflation. And that's something that a lot of folks don't understand, except for when they're at the grocery store,

when they're trying to fill their car with gas or they're trying to make their mortgage or their credit card payments. So what we're seeing is a couple of things. In the housing market, the interest rates have gone up over 7 percent and they're holding there right now. A lot of that has to do with what's going on with the debt limit as well as with inflation. But this is actually causing a shortage of inventory because a lot of people still have houses where they have a fixed 30-year mortgage at 5% or under. And those people don't want to move. So what we're starting to to see is people looking to make their first home purchase can't do so, or companies who are looking to hire a person and have them relocate or having a great difficulty in getting people to do that.

Another interesting area that we're seeing is in the automotive sector. Prices are coming down in the automotive sector. New car prices are down anywhere from 2.5 to 5% depending on the make and model, and used cars are down 10 to 20% depending on the same. However, interest rates are skyrocketing. For a new car, the interest rate over the last last year has gone from 5.5% to almost 9%. And for use cars, it's gone from 7.5 to 11.3. And those numbers are not captured in the inflation rate. The only thing the inflation rate will capture is actually the decrease in the price of a car,

not the increased cost of actually purchasing a car. Now, in your article, you also mentioned people reaching into their retirement accounts to make ends meet. How prevalent is that? Yeah, it's quite frightening, actually. In 2022, the number of hardship withdrawals from 401Ks rose by 24% year over year, which means more and more Americans can no longer afford to pay their bills. They're having to go to different places to get the money to pay those bills. And what we're seeing them do is take money out of the 401K,

which if you fast forward down the road, that's going to create even more problems for these folks is they don't have money than to retire. The other thing that's part of this is skyrocketing credit cards, debt. Credit card debt for Americans is almost at $1 trillion. It's over $900 billion right now, which is another increase of 17% year over year. And what we're seeing is people aren't using credit cards for things like vacations and luxury items. They're using their credit cards to do things like purchase groceries, purchase gas, to make rent payments. So they're basically using

credit cards for necessities, but then because they don't have the money, they're having to finance those charges at 20 plus percent, because that's where the interest is. rates on credit cards are right now. We did see some improvements on credit card debt in 2021 compared to the year before. Was that the result of stimulus payments? What are some of the other reasons that debt went down? And why is it increasing so much now? Sure.

There were two things that really happened in that time frame. One, as you pointed out, there was the stimulus packages that gave people a whole bunch of free money. The second thing is that there really wasn't anything to spend your money on during that time. Everyone was in lockdown. So once you, you know, do your monthly subscription to Netflix and you get your Instagram, car deliveries and maybe you purchased that stationary bike that then became a close hamper for you, you really didn't have any way to spend your money. And then once people came out of the lockdowns from COVID and the stimulus money dry it up, people realized that they had been

maybe living above their means or that their means just weren't there. And then you add inflation on top of that and people had to significantly start relying on credit cards to take care of their daily expenses. So is there a breaking point that's looming? when it comes to credit card debt. Well, it's not just with credit card debt. We're starting to see those breaking points now. Let's revert back to auto industries. The number of people 60 days or more behind on auto launches increased over 20% year over year.

Severe delinquencies are at their highest since 2006. Loan defaults are up 33% and repossessions are up 11%. So people can't afford to make those payments. What you're going to start seeing on the credit card debt is more and more people paying at the minimum on their monthly payments or skipping monthly payments and incurring fees to do so. This becomes a snowball effect and I think what we're going to start to see are more and more families declaring bankruptcy to get out from underneath this debt because they simply can't afford the monthly payments any longer if they want to continue to eat.

Shifting gears a bit, you're obviously a supply chain expert with years of experience in the field. After all the backups we've seen recently, are things getting better now and what can we learn from what we've seen to prevent future backups. Things are definitely starting to get better. We've relieved a lot of the port congestion and that's because we've seen more and more vessels stop going to the west coast, Long Beach and Los Angeles and making calls on the east coast, either in Florida, Savannah, or all the way up as far north as New York and New Jersey. So we're starting to utilize more of our ports and becoming less dependent on the ports of Long Beach and Los Angeles. The other thing that's actually

help the supply chain is that China is not producing to the same extent that they were and we're not importing as much from China as we had been in the past. So that also releases some of the pressure that we saw. The last piece of the supply chain problem that's starting to be fixed is we're no longer seeing the massive shortage of computer chips that we were seeing before. And what happened with the computer chips is people weren't able to complete building, say, a car or a bus or a computer or anything that required the chip. So all of the those things sat in limbo at manufacturing facilities. And once the chips came in, the supply chain simply couldn't handle the surge in demand that was happening. We've seen demand kind of steady out

now, which is very good. But if you want to take a glass half empty approach instead of a glass half full approach, part of the issue with why the supply chain is recovering the way that it is, is because we're starting to slide into recession demand for these goods are also declining in the United States. So what could be done in your view in the future, to avoid the supply chain disaster that we saw during the pandemic in the last few years, what would you do to make it better? So there are a couple of things. And first of all, I like to say that, you know, COVID did not cause the supply chain

issues. COVID exposed how bad the supply chain is in the United States. And there are some things that we definitely need to do. I think we really need to take a look at the relationship between the dock workers unions and the ports and truly allow ports to operate on a 24-7 basis. when Gavin Newsom made a big show about having the ports of Long Beach in Los Angeles go to 24-7, the port may have been operating 24-7, but the place to receive the containers and the chassis that are needed to unload the ships were not operating at the same level.

The other thing that we need to do is we need to look at some of the regulations that we have in place that just really, really hurt us. For example, if you are a young woman who drove an 18-wheeler in a war zone in, say, Afghanistan or Iraq or now in Sudan. You are not allowed by law to have a commercial driver's license to cross state lines until you are 21 years old. So the fact that you're able to do it in an 18-wheeler and a war zone has no impact over your ability to say drive from Georgia into South Carolina because it's prohibited until you're 21. That causes a severe shortage of truck drivers because people who might otherwise want to become a truck driver go into other industries because they don't want to wait until they're 21 to get that job. The other thing that we should really look at doing, which will not only alleviate supply chain issues,

but decrease the cost of a lot of the goods and services that come to the United States via ship, is to repeal something called the Jones Act. The Jones Act says that any ship that goes from one U.S. port to a second U.S. port must be flagged by the United States and must be crewed by a certain percentage of American citizens. This means that if you are on a ship that is going from, say, Shanghai to Los Angeles, but also have containers that should be dropped off in Hawaii, you have to go all the way to Los Angeles, offload the goods for Hawaii,

and then have them put onto a U.S. flagged vessel and taken back to Hawaii. Their estimates right now that if you live in Hawaii, you're paying an additional 25 to 30% for the goods that you purchase that come in via this manner because of the Jones Act. It's an antiquated way that's something we had in place that was meant to protect U.S. shipping,

but U.S. shipping is basically non-existent at this point. I think at last study, there were fewer than 100 vessels that met the requirements for the Jones Act that were flagged by the United States. So it really drives up the cost. But if we need fewer people involved with regulating the supply chain, we'd be much better off. Let me give you one other example of how we're making it more and more difficult for the supply chain to operate in a smooth manner. California has passed more and more restrictive laws regarding emissions. We're to the point now that if you own a tractor trailer that has an engine that is pre-2010, you're not allowed to drive it into a California port or on a California highway.

It's estimated that they took 50,000 trucks off the road with that law. What does that do? It makes it harder to get goods and services moving to where they need to go, and it makes it more expensive to do so. So we'll see what's going to happen. But sometimes, as they say, if you're in a deep hole, stop digging, That's kind of what we need to do at this point. We've seen artificial intelligence really burst onto the scene,

and it's already revolutionizing the economy. Do you see AI and other emerging technologies as a positive or a negative when it comes to the supply chain? The overall impact will be positive. I think we'll see some negative impact in terms of employment. If you think about what you can do with AI now, if you were, let's say that you are a company such as Amazon that has just hundreds and hundreds of distributions,

centers across the United States, and then tens and tens of thousands of different routes that they have to follow. AI can optimize that in the blink of an eye. And they could help a company like Amazon save on fuel, reduce the number of drivers that they would need, perhaps reduce the overall numbers of warehouses and distribution centers that they would need. Now, that would come at the expense of supply chain consultants such as myself, who would take normally a month to two months to do that same amount of calculation. So AI will put people like me out of business in the near term because it can do the calculations that I do much more readily

and probably much more accurately, to be honest with you. The other thing that I think that we'll start to see is more and more automation that's driven by AI. I will eventually get to self-driving trucks. We'll get to the fully automated warehouse where maybe instead of needing 30 people per ship, you have two people per shift there just to make sure that the equipment continues run as it should. So it'll make things better for the American consumer.

It'll make things less expensive and more efficient for the American consumer, but it'll hurt people such as myself or people who work in distribution centers. But we're still, in my guess, five to ten years away from getting to that point. And by that point, people adjust, they overcome, they change career past, they go do something else. So in closing, what are some things that the average American may not understand about the modern supply chain? I think some of the things that they don't understand is just one, the number of people that are required to have the supply chain operate efficiently. If you think from the time that a container is put on a ship in Shanghai, that ship crosses the oceans, comes to the Fort of Long Beach, gets unloaded, gets put onto a truck, gets taken to a distribution center, gets broken down, gets put on different trucks to go to different distribution centers, reloaded, and then taken maybe to a drug store or a department store. and then put onto the shelf or the display floor,

there are a lot of people that touch this, and they do it quite efficiently considering all the regulations that they have to work under. We're still struggling to get back to the employment levels in the supply chain that we had pre-pandemic, but we're getting close to that. But I think what the American people need to realize is that there are hardworking Americans

who work 24 hours a day, seven days a week, to make sure that when they go to their grocery store or the department store, the product they want to buy is sitting there on that shelf. All right, Jim, we'll leave it there. Thanks so much for joining. Thank you much. It was a pleasure to be with you.

That was Daily Wire's senior editor, Cabot Phillips, with Jim Nellis, a supply chain consultant and economist. And this has been an extra edition of Morning Wire. In a bombshell report, anonymous sources have confirmed your dad is still using a woke razor. Stop the scandal this Father's Day and get dad a gift from Jeremy's razors. Take advantage of 30% off the Precision 5 starter set or men's care essentials that are sulfate-free, parbin free, woke free, and made in the USA. This year, get him the gift that respects his values and his masculinity.

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