US Prices: What's Getting More Expensive

**Luke Wilson** (0:00)
Price rises are slowing down in the US., but are they still too high for the Fed? It's World Business Express from the BBC World Service. I'm Luke Wilson. The Yen takes another hit after the US and Japan intervene to prop up the currency, and the chairman of India's biggest conglomerate resigns after a year-long boardroom battle.
Data out in the last couple of hours shows US inflation, how fast prices are going up, slowed to 3.4% in the year to July. It was only a slight fall compared with June's 3.5% figure, and is still well above the Federal Reserve's 2% target. Danny Reynolds is the owner of Stevenson's of Elkhart, a clothes and bridleware store in the US state of Indiana.

**Danny Reynolds** (0:48)
I guess we were glad to see that inflation wasn't any higher than expected because we've certainly seen quite a lot of pressure, especially over the last few years. These last several, really so much pressure from so many different directions. Obviously, in the last year plus, the tariff pricing has been a major factor, or better or worse, most of our merchandise, especially on the special occasion, bridle and is coming from China. So certainly, we've seen increases there. Also, the increases in shipping and freight costs have gone up exponentially. Couple that with energy costs, people's fuel prices, but also the costs to... We have a rather large brick and mortar store, so to cool that on what has been a hot summer day, just all those kinds of increases have certainly gone up higher than what we're able to build into any sort of pricing scheme.

**Luke Wilson** (1:38)
And when it comes to your customers, people you're speaking to, how does it seem their feeling about the cost of living?

**Danny Reynolds** (1:45)
I feel like there is a lot of price awareness right now. I'm not going to say we've seen a lot of resistance, but people are certainly conscious. That's coupled by sort of idiosyncrasy, specifically speaking, is that where we are in Elkhart, Indiana, we are the recreational vehicle manufacturing capital of the world.
And much of our local economy revolves around that industry. 90 plus percent of all RVs, trailers, campers, mobile homes are made in our town. And that is a business that has seen a lot of pressure in the last couple of years. It's been difficult. I think they said they're about 14 percent down again this year. It was the same last year. So all that to say that many people's livelihoods revolve around that industry. And since that's been tough, our customers are feeling the bench kind of from both directions, income and cost.

**Luke Wilson** (2:35)
Danny Reynolds, owner of Stevenson's Clothing Store in Elkhart, Indiana. Russ Mould is investment director at AJ Bell. We've got that headline figure of 3.4 percent, Russ. But can you break it down for us? Yes.

**Russ Mould** (2:48)
The reason for the cooling and the fact that US inflation is now at its slowest level since March is really down to oil prices, fuel oil, and a little bit of shelter. So it's those weaker oil prices that we've seen as financial markets have been hoping for a peaceful resolution in the Straits of Hormuz. I also helped buy food prices, which did not accelerate any further.

**Luke Wilson** (3:07)
And what does all of that mean for the Federal Reserve and interest rates?

**Russ Mould** (3:11)
Yeah, inflation is still well above the Federal Reserve's 2 percent target. That is, there's no doubt of that. But you've had some weak jobs numbers. The American national debt continues to go up, and you can't really afford much higher interest rates. And they have a president with a midterm election to fight who wants lower interest rates and financial markets encouraged by this cooler inflation. Now I think there may be only one, possibly two interest rate increases in the next 12 months, less than you would have thought maybe two or three months ago.

**Luke Wilson** (3:34)
Thanks Russ, we'll be back with you shortly.
Japan's currency has weakened again to 159 yen per dollar, raising the prospect of another intervention to prop it up. The US and Japan confirmed earlier this month they had stepped in to support the Japanese currency after it fell to a 40-year low at the end of July. Jesper Kohl is from the Japanese investment firm Monnex Group.

**Jesper Kohl** (3:57)
The interest rates in Japan are very low.
You can basically borrow money for around 1% and then invest it for a yield of 4.6% in the United States of America. That carry trade out of Japan is exactly why the yen has been weakening for the last two years and will continue to weaken. The partnership between Prime Minister Takaichi here in Japan and President Donald Trump is a very, very strong one. Obviously, Japan is kind of the unsinkable aircraft carrier for the United States here in Asia against the People's Republic of China. So a very, very close partnership is what those two heads of states are working on. And Prime Minister Takaichi in Japan is hurting. She's hurting from the fact that because of the weak yen, the purchasing power of the Japanese people is declining. For every 10 yen that the yen weakens, inflation goes up by about half a percentage point, hurting Mr. and Mrs. Watanabe.