Billionaire investor Mark Cuban offers his take on why inflation hasn’t spiked to the extent that it was expected by leading economists, in response to the “Liberation Day” tariffs imposed by President Donald Trump
What Happened: On Sunday, in a post on X, Cuban said that businesses, both large and small, are scrambling to get ahead of potential tariff hikes by using their cash reserves or taking on debt to stockpile inventory.
“They borrow money or use their available cash to front-run the tariffs and buy as much inventory as they can,” he says, adding that “in many cases, they get a better price because the [manufacturer] knows the risks post tariffs.”
However, Cuban warns that none of this “is a positive,” arguing that such an inventory strategy comes at a cost, with businesses either having to sacrifice interest income on their cash holdings or incur high borrowing costs of between “10% to 20%” to make this work.
He further highlights the risk of not having cash or constantly piling on liabilities to finance this kind of trade, hinting at significant financial strain for businesses.
The on-and-off nature of the tariffs in recent weeks makes it harder for companies to plan pricing strategies. As a result, Cuban says that many are opting not to raise prices at all. “In fact, they may even discount some as a way to clear out inventory and replenish cash or pay down expensive loans,” he says.
Cuban argues that this isn’t just an issue for small businesses, saying that “all companies” will be facing this, including giants such as Walmart Inc. WMT. “This is why Walmart says they will be raising prices in the future,” he says.
“The variance in tariffs has made it impossible to know how to manage costs,” Cuban concludes, “this is why prices haven’t gone up to this point.”
Why It Matters: Leading Wall Street economists, such as Stephen Juneau of Bank of America, hold similar views when it comes to inflation, saying that “larger increases are in the pipeline” owing to the front-loading of demand.
Economist David Mericle of Goldman Sachs believes that the core personal consumption expenditures inflation, or PCE inflation, will rise to 3.6% by the end of 2025, from 2.8% in April.
On Sunday, Walmart employees began sharing images of price increases on Reddit, with certain items surging as high as 45%. Target is known to have reported similar price hikes as a result of the tariffs.
Renowned hedge fund manager, Bill Ackman, is however, of the view that inflation has been “wrung out of the economy,” suggesting that the Federal Reserve could implement a few rate cuts towards the latter half of this year, in light of the same.
Photo Courtesy: Kathy Hutchins On Shutterstock.com
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