Just because Walmart usually has a lean inventory doesn't mean they have to. They have often stocked up locally, for example pre-positioning inventory in expected hurricane zones. Also, given the pressure they exert on suppliers, it may be those suppliers who really stocked up, to continue supplying to Walmart under existing contracts.
You are probably correct on this point. I am no WalMart expert. Given their revenue and inventory on the balance sheet, I calculated a 12x inventory turnover ratio
per quarter. Imagine everything in a WalMart store being sold every 7.5 days, on average. That seems so incredibly lean that vendors must be holding some of the inventory on their books.
But if WalMart hasn't had to raise prices until late May / early June, then it must have signed pricing agreements to buy those inventories at pre-tariff prices. That means any suppliers who signed US orders for inventory not yet in the US could have absorbed serious damage from the tariff war.
The impact of Walmart's announcement goes far beyond them, of course. I'm sure Target and every other retailer are breathing a sigh of relief. Walmart's CFO was careful to "praise the administration for their progress on tariffs," and try not to become a Trump scapegoat for rising prices.
This was, in essence, permission for everyone to raise prices.
This is certainly correct. The competitive barrier to passing on tariff costs to the customer may have just crumbled. While we're all breathing a sigh of relief that 145% tariffs are no longer in place, we should watch for a rather sudden increase in the price of imported goods (i.e. most goods) to account for 10-30% tariffs.
I was incorrect to anticipate a slightly hot April CPI, PCE, and PPI because of bigger lags and inventories in the supply chain than are evident from just looking at retailers' financial statements. Perhaps WalMart's price-hike warning reveals exactly how long these supply chains are for imported non-perishables: two months.
In contrast, when 25% tariffs on Mexico came into force, I noticed the price of avocados where I live jumped from 99 cents each to $1.25 within about two days. Bananas jumped from 59c per pound to 75c. These items, which jumped about 25% in price after 25% tariffs went into effect, immediately fell back down to pre-tariff prices once a 90 day pause took effect. Obviously perishable products such as these have a leaner and faster supply chain than clothing, electronics, canned goods, etc.
But if anyone has any illusions about the cost of tariffs being absorbed by retailers, wholesalers, or producers, think again. With perishables, 100% of the cost was immediately passed through to consumers AND marked up to previously existing retail margins. I doubt non-perishable imports will be treated any differently.
Consumers will simply have to buy less stuff, as Mr. Trump pointed out in his
commentary about dolls. Consumers will still
blow almost their whole paychecks, and retail margins and profits could remain the same, but they'll simply receive less stuff in return. Just as $10 bought 10 avocados pre-tariffs, and post-tariffs only bought 8, such will be the case with everything WalMart sells, cars, materials, medicines, etc. And just as Kroger earned the same gross margin selling 10 avocados at 99 cents as they earned selling 8 at $1.25, so will the sellers of more durable products.
I don't think aggregate demand in dollar terms will fall at all, but the amount of goods sold will decrease. Consumers may apply product substitution where they can, or just buy fewer frivolous things. This could actually help retailers if, for example, the amount of avocados they must pay to ship drops 25% while their sales of avocados in dollar terms remains the same. A reduction in inventory turnover might be offset by a reduction in the cost of inventory required to be kept in the supply chain, and a reduction in shipping/restocking costs.
We'll all get poorer in terms of the purchasing power of our labor or portfolios, but it might not show up on corporate financial statements or GDP.
The most interesting economic metric released today is below. The price of imported goods from China has been falling since COVID-induced supply chain disruptions, and has gone into freefall since the election of Tariff Man. Per
the BLS, "The index last increased on a monthly basis in October 2022." and "The price index for imports from China fell 1.3 percent over the past 12 months..."
My interpretation:
Chinese deflation is playing a role, but it also might be that merchants are trying not to be stuck with excess inventory after tariffs reduce demand for their goods. So they're accepting lower and lower margins just to move inventory, and to buy time before shutting down productive capacity in case things change. Imagine owning a Chinese warehouse full of inventory that is losing value every day due to deflation, and which might become virtually unsaleable as an export due to pending tariffs. You can unload it cheap and generate enough cash flow to stay afloat, or you can risk losing a lot of value. Now imagine being an American buyer in a potentially inflationary environment who might be able to stock a warehouse with items that will only become more valuable the longer they are held. Hence the spike in trade between November and March, which allowed WalMart to float out two months before raising prices.
